Independent firm says SunRice undervalued

Posted by Nicole Eckersley on 20th May 2011

rice_bowl_lg.jpgConsulting firm DMR Corporate has defended its claim that Ricegrowers is undervalued by as much as $100 million, after criticism from the rice processor’s chairman. Ricegrowers shareholders are set to vote on a takeover offer from Spanish group Ebro Foods at the end of the month.DMR Corporate, which “specialises in securities and business valuations”, made its claim when asked by the largest shareholder in the rice firm, which trades as SunRice, to value the company.

The DMR report, commissioned by SunRice investor Julian Menegazzo, said the official report from Lonergan, Edwards and Associates, the rice company’s valuer, had undervalued the business.

LEA’s report had concluded that the A$600 million takeover offer from Ebro – a bid accepted by the SunRice board, but one that is still subject to approval from the company’s investors – was “fair and reasonable”.

However, DMR has argued that LEA, in its valuation of SunRice, applied 2011 forecast EBITDA multiples for a number of peer companies to the rice firm’s historical EBITDA between 2007 and 2010 to determine the enterprise value of the company.

This calculation, DMR said, undervalued the company. LEA, it argued, should have used 2010 multiples.

DMR said LEA should have calculated SunRice’s valuation at $338.4-417.6 million – an undervaluation of up to $100 million.

The DMR report prompted criticism from SunRice chairman Gerry Lawson. According to DMR, it received a letter from Lawson in which he called the research “biased and misleading” and “of concern to the board”.

However, in a letter written to the Australian Financial Review, DMR directors Derek Ryan and Paul Lom hit back against Lawson’s “derogatory” claims.

In the letter, Ryan and Lom said the DMR report “correctly interprets the factual data” presented by LEA.

The DMR directors also brushed off Lawson’s criticism that SunRice was not given the opportunity to check their report.

“Our work was conducted for a major SunRice shareholder, and it was based on data contained within the LEA report. For that reason there was no reason to have SunRice check our report,” they wrote. “To date we have not found any errors or misleading statements contained within our report.”

Ricegrowers shareholders are set to vote on the Ebro offer at the end of the month. Ebro chairman Antonio Hernandez Callejas has called SunRice a “very powerful business” that is “very complimentary” to the food maker.

This story is sourced, with editorial alterations by AusFoodNews staff, from just-food – the world’s leading portal for the global pre-packaged food and retail industries. Its daily mix of breaking news, views, analysis and research serves over 100,000 food executives each month.