UPDATE 2-Political heat rises over bid for Spanish olive oil giant

Wed Apr 9, 2014 12:27pm EDT

(Recasts, rewrites with sources, bankers, Italian PM comment)

By Fiona Ortiz and Jesús Aguado

MADRID, April 9 (Reuters) - Some of the owners of the world's top olive oil bottler Deoleo are rethinking plans to sell, sources said, after the Spanish government revealed its interest in buying into what it sees as a nationally strategic company.

The move puts at risk British-based CVC Capital Partners' bid for the indebted Spanish firm, which sells one fifth of the world's bottled olive oil and owns three of the top four brands, Spain's Carbonell and Italy's Bertolli and Carapelli.

Spain is by far the biggest world producer of olive oil, with the growing industry a major employer in the country's impoverished south. The government has said that while it will not block foreign takeovers, it does not want to see the company broken up.

Deoleo said on Wednesday private equity firm CVC had made the highest offer for the company. CVC planned to maintain Deoleo's brands and keep the company intact, a source close to the deal said.

CVC bid 0.38 euro per share, below its current market price of 0.43 euro, valuing the company at around 439 million euros ($606 million).

CVC was among seven private equity groups and funds that last week tendered bids for Deoleo after four Spanish banks put their combined 31 percent stake on the block. A buyer of more than 30 percent must make a full takeover offer.

But following talks between the government and shareholders it was no longer clear whether all four of the banks - state-owned Bankia and BMN, and Barcelona-based Caixabank and Basque bank Kutxa - were still interested in selling, several sources with knowledge of the matter said on Wednesday.

"CVC is talking with the banks to see who is selling and who isn't. It depends on how they evaluate the CVC plan and what the government does," said a source close to the deal, who asked not to be named.

The four banks and CVC declined to comment.

Deoleo's board would meet on Thursday to review CVC's offer, which includes recapitalisation and loans, the same source said. CVC was only interested in Deoleo if it could control 50 percent or more, he said.

The government could buy stakes from state-owned lenders Bankia and BMN and then draw in other big shareholders including olive cooperative Dcoop to create a pact to control the company, said a banking source with knowledge of talks between the parties.

"That would really complicate the plans of any foreign investor," the banking source said.

A government source denied, however, that there was any plan to take more than a tiny symbolic stake in the company.

Unicaja bank and Ebro Foods are among other significant stakeholders.

ITALY-SPAIN OLIVE RIVALRY

Of particular concern to the Spanish government was that one of the bidders for Deoleo was IQ MIIC, a joint venture between Italian state investment fund FSI and its Qatari counterpart. Other bidders were U.S. private equity firms Carlyle and Rhone Capital, and France's PAI Partners.

Italy is Spain's biggest olive oil rival though a much smaller producer. A third of Spain's olive oil output is shipped in bulk to Italy every year, where it is mixed with oil from other countries and bottled.

Italian Prime Minister Matteo Renzi said on Wednesday he planned to ask Spain to treat foreign firms fairly in the Deoleo bidding process.

While sources close to Deoleo and some of the bidders saw it as unlikely that the government would want to take a big piece of the olive oil company, others pointed to a precedent set last year.

In a surprise move in August, the Spanish government's industrial holding company SEPI bought a 20 percent stake in defence and technology firm Indra, also considered a strategic company, from rescued lender Bankia for 337 million euros.

SEPI, the prime minister's office and the treasury ministry all declined to comment on Deoleo on Wednesday.

IS THE PRICE RIGHT?

Even though CVC's offer is below the market price, it could still tempt more than half of shareholders to sell, the source close to the deal said because of the stock's high rating.

Deoleo is trading at an enterprise value of 9.5 times 12-month core earnings, a premium of 12 percent over the Spanish food sector average, according to Thomson Reuters Eikon data.

Banking sources said CVC's offer was also attractive because it included recapitalisation and loans to help the company meet big debt maturities in the coming two years.

Deoleo ran into problems in 2009 after years of debt-fuelled acquisitions. It has since been recapitalised, and it has cut its debt to around 500 million euros, or six times core earnings, from a previous level of 16 times core earnings. ($1 = 0.7249 euros) (Additional reporting by Sarah White, Tomas Cobos, Julien Toyer in Madrid and by Sara Rossi in Verona, Italy; Editing by Sonya Dowsett and Erica Billingham)