UPDATE 2-Marine Harvest takes $1.7 bln Cermaq bid to shareholders

Thu May 2, 2013 6:44am EDT

* Appeals to biggest shareholder for common sense

* Decision rests with Norwegian govt, which holds 43.5 percent

* Cermaq shares soar 20 pct

* Analysts say fair value much higher (Adds valuation comparison, analysts, quotes, industry outlook)

By Balazs Koranyi and Ole Petter Skonnord

OSLO, May 2 (Reuters) - Marine Harvest, the world's biggest fish farmer, took its $1.7 billion hostile bid for state-controlled rival Cermaq directly to Norway's trade minister on Thursday after the firm's board rejected its initial bid.

Harvest, controlled by shipping tycoon John Fredriksen, said it would appeal to shareholders including the government, which holds 43.5 percent of Cermaq, in its bid to create a global giant that would be a top player in everything from feed to processing.

European fish firms are booming as constrained supplies and the threat of a new epidemic in Chile push fish prices sharply higher, boosting profits after a difficult 2012 and analysts said Marine Harvest's offer of 105 crowns per share still looks low.

"After the rejection, we are now talking to the state directly, believing that common sense will finally prevail," Marine Harvest Chairman Ole-Eirik Leroey told Reuters.

Cermaq rejected the bid, pitched at 22 percent above Tuesday's closing price of 86 crowns, arguing that it undervalued the company and unreasonably asked it to drop its own $730 million bid for Peruvian fishmeal firm Copeinca .

Cermaq shares jumped 20 percent to 103 crowns per share on Thursday, just below Marine Harvest's cash and shares offer, but analysts said this was probably not yet enough.

Norwegian brokerage Fondsfinans estimates Cermaq's value at 118 crown based on a sum of the parts valuation while Handelsbanken has a 125 crown target price on the stock.

"We are thus not certain that Marine Harvest will be successful in securing two-thirds of the shares, on which the offer is conditional," Fondsfinans said. "In particular, we are uncertain as to whether the main Cermaq shareholder will accept settlement in 50 percent Marine Harvest shares."

Cermaq shares traded at a 2014 enterprise value to EBIT ratio of 6.2 percent before the bid, well below the industry's 7.1 average and Marine Harvest's own 8.

UNEASY RELATIONSHIP

The outcome now rests with Trond Giske, Norway's industry and trade minister, who controls the shares on behalf of the state and is known to have an uneasy relationship with Fredriksen. His ministry said it was following the situation but would not comment further.

Norway recently eased its ownership rules, allowing firms to hold up to 40 percent of the Norwegian market and the deal would increase Marine Harvest's share from about a fifth to around 30 percent, staying well below the maximum.

But although Norway owns controlling stakes in big listed firms like Statoil or Telenor it has no tradition of overruling company board decisions.

Global salmon production soared 22 percent last year as Chile returned to the market after an epidemic devastated its fish stocks but further growth ahead will be limited to just 2-3 percent a year, pushing fish prices high.

Fish is in high demand as the world's population rises because it is cheaper to produce and offers higher yields.

Around 68 percent of salmon is edible, above the 45 percent for poultry, while a 100 kilograms of feed will yield 65 kilograms of fish but just 12 kilograms of pork. Its 31 percent protein content is also higher than pork or poultry.

Fredriksen, estimated as worth $11.5 billion by Forbes magazine, is a controversial figure in Norway, particularly with the centre-left Labour government.

Having traded his Norwegian passport for Cypriot citizenship for tax purposes, he has been moving many of his companies away from Norway prosperous oil-based economy with its high wages and living costs. (Reporting by Balazs Koranyi; Editing by Patrick Graham)

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