January 27, 2010 / 10:21 AM / 7 years ago

Australia's CSR rejects $1.4 billion China sugar offer

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SYDNEY (Reuters) - Australian conglomerate CSR Ltd (CSR.AX) rejected a $1.4 billion offer from China's Bright Food Group for its 150 year-old sugar business, and said it would go ahead with a planned demerger of the business, to be called Sucrogen.

Analysts said the Chinese firm would need to raise its offer by up to 20 percent to win over the CSR board, and would need to move quickly as CSR shareholders will vote soon on the demerger.

But the Chinese may face competition in bidding for the dominant force in the world's third-largest sugar exporter, as its demerger would give the market a better idea of its value, analysts noted.

Potential foreign rival candidates for CSR's sugar division could include food companies such as Brazil's Cosan (CSAN3.SA) (CZZ.N), Bunge Ltd (BG.N), Cargill CARG.UL and Associated British Foods Plc (ABF.L), they said.

China has been buying Australian resource assets to secure supplies to fuel growth in the world's fastest growing major economy, and is now showing interest in agricultural and food companies.

CSR's sugar business accounted for around 60 percent of Australia's 4.2 million tonnes of raw sugar output in 2009. Most of Australia's sugar exports go to Asian countries.

Sugar futures prices have powered to record highs this month, partly driven by expectations of a large global deficit this season after disappointing crops in Brazil and India. Analysts say Bright's bid would face regulatory hurdles, including possible opposition from an Australian government that has blocked or set strict conditions on some recent Chinese acquisitions of mining assets.

CSR said it received a non-binding offer from Bright for the sugar business, but would go ahead with the planned demerger as Bright's offer was highly conditional.

It said it could engage in talks with Bright only if there was a high degree of certainty over the value, timing and likelihood of a deal being completed, but no such assurances had been given.

"Bright's original intentions would have been to have a final bid on the table before CSR shareholders vote on the demerger," said Simon Dumaresq, an analyst at EL&C Baillieu.

"However, based on today's announcement, CSR are not going to give Bright final access for due diligence without a more formal bid."

Dumaresq said Bright would need to offer another A$200-A$300 million ($182-273 million) to win CSR board support.

CSR shares fell 2.9 percent to A$1.86 on Wednesday, outpacing a 1.7 percent fall in the benchmark S&P/ASX 200 index . CSR, a $2.6 billion group which also has interests in building materials and aluminum, aims to complete the Sucrogen demerger by end-March.

It noted its decision to pursue the demerger did not preclude Bright from making a future approach for the business.

Editing by Ian Geoghegan

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