November 30, 2015 / 12:34 PM / 4 years ago

Exclusive: Malaysia's Felda scraps $680 million Eagle High deal to rethink plan

KUALA LUMPUR (Reuters) - Malaysian palm plantation operator Felda Global Ventures Holdings Bhd (FGVH.KL) has scrapped its planned purchase of a stake in Indonesia’s PT Eagle High Plantations (BWPT.JK) for $680 million, saying it needed to rethink the deal.

Felda shareholders had criticised the deal to buy a 30 percent stake in cash and an additional 7 percent by issuing new shares, announced in June, as too expensive.

One source directly involved in the matter told Reuters on Monday that both parties had gone back to the drawing board to work on new terms.

“The previous arrangement didn’t make sense any more,” said the source said, adding that the new terms could include a lower sale price, a bigger landbank being sold or Felda taking more control of Eagle High.

Confirming a Reuters report earlier on Monday, Felda, the world’s No. 3 palm plantation operator, said in a statement that the deal with Indonesian conglomerate Rajawali group, which controls Eagle High, had faltered.

“Current market conditions and developments in the palm oil sector have made it necessary to mutually review the existing mode of investment in order to maximize the benefits for all parties involved,” Felda said.

The news sent Eagle High’s shares down nearly 10 percent. Felda’s shares closed down 1.1 percent, after falling as much as 4.5 percent on Monday.

The deal was set to be Felda’s biggest acquisition so far to expand its landbank and there were no specific details on Monday on how and when a revised deal would be finalised.

Felda said the parties agreed that Monday’s deadline to enter into conditional share purchase agreements will no longer be applicable.

Felda had to extend deadlines for the deal after state-linked funds and shareholders questioned the potential premium of 54 percent to 82 percent.

The planned transaction would have been mostly funded by debt, which prompted analysts to cut their ratings and price targets for Felda.

“The cancellation of the deal is an upside for the company as this was expected to be near-term earnings dilutive,” Marvin Khor, an analyst at AllianceDBS Research, said ahead of the announcement.

Felda’s shares fell to record lows in August in the wake of news of the planned deal but have since regained some ground.

The Malaysian company had agreed to buy shares in Eagle High at between 678 and 800 rupiah per share, Rajawali officials said in June, when Eagle High was trading at around 440 rupiah per share.

The Indonesian company’s shares have since plunged by two thirds to 141 rupiah on uncertainty over whether the deal would go through, giving Eagle High a valuation of $323 million on Monday.

Felda had initially defended the price tag on the deal, saying it was only paying the market value to acquire a large and fertile landbank, something it had been pursuing unsuccessfully since it raised $3 billion in an IPO three years ago.

It lost out in a bid for Papua New Guinea-based New Britain Palm Oil Ltd last October to domestic rival Sime Darby (SIME.KL).

Reporting by Anshuman Daga and Emily Chow; Editing by Lisa Jucca and Susan Fenton

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