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Comvita Shareholders Challenged on Potential Takeover

Comvita Shareholders Challenged on Potential Offshore Takeover

David Miller, Director of Vantage Consulting Group, has challenged Comvita shareholders “tae think again” about any acquisition offer by offshore purchasers such as Cerebos, 83% owned by Japanese liquor company Suntory.

"Comvita has made huge strides in the establishment of an international distribution in Asia and other parts of the world," said Mr Miller.

"The company has extended its control over the international value chain for health products, several based particularly upon manuka honey. These have evolved from a science commercialisation based relationship with University of Waikato. The company also has strong supplier relationships with honey and other natural products producers."

Mr. Miller compared Comvita's business model for the international growth of the New Zealand manuka honey industry with that of Zespri for New Zealand's kiwifruit industry and Fonterra and Tatua for the dairy industry.

“And unlike manuka honey, kiwifruit and dairy cows are not native to New Zealand.”

“If Chiquita made a bid for Zespri or if Nestlé made a bid for Fonterra or Tatua, legal considerations aside, there would be a significant debate about whether this was good for the country," Mr Miller commented.

"If New Zealand is going to develop a strong food, beverage and natural health products industry on the back of its primary production, it is crucial that shareholders adopt a long-term commitment to international expansion and control of the value chain," he asserted.

"Passing control to offshore multinationals, particularly with these niche, high-value products, is likely to diminish value for New Zealand-based participants in their production and processing,” stated Mr Miller.

“The company is to be commended for focusing on high-value healthcare markets, including functional foods, skincare and especially wound care,” he stated.

“While its profitability has fluctuated, gross profit has consistently improved and net profit will benefit from the company’s far-sighted investment in global distribution”.

"Do we really want to expose one of our most promising high added value primary industry based sectors to the whims of offshore managers who may have little commitment to increasing the New Zealand sector's value capture and long-term, sustainable competitive advantage?" asked Mr Miller.

“Multinationals have fluctuating investment policy priorities and a propensity to acquire and sell down offshore subsidiaries.”

“Some New Zealanders build businesses where international comparative advantage overwhelmingly lies offshore. In these cases, it is almost inevitable that an offshore acquisition will occur at some point. I'm not at all sure that this is the case for manuka honey-based health products. Sweden didn't build a world-class forestry engineering industry on the back of its forestry sector by selling out to offshore bidders in the early stages of its industry development.”

Compounding the difficulty is the fact that price: earnings multiples are typically higher in leading overseas sharemarkets. And it is not uncommon in takeover situations for the asking price to be further ratcheted up.

"I’m confident that NZTE and the Ministry of Science and Innovation will be working hand in hand to give Comvita all the assistance they can in terms of R&D, product diversification and new market entry. But no government is going to permit an industry controlled model such as Fonterra or Zespri to apply to Comvita. It is pleasing to see that the directors have recommended against accepting the offer. Comvita director Dr David Cullwick will have a deep appreciation of these issues – he developed an excellent analytical model of export evolution for New Zealand firms many years ago when he was Professor of Marketing at Victoria University. And I’d bet that the founding shareholders and the senior Comvita management team will be committed to a long term development strategy.”

“The thought of flogging offshore the value chains associated with icons such as Mt Cook, the Waitomo caves, the kiwi or the All Blacks would be beyond the imagination of most New Zealanders. Why on earth would we do it for manuka honey derived health products, which are based on another national icon?”

“But at the end of the day it is over to shareholders to decide whether they are prepared to be patient and allow the further execution of a long-term strategy to build value through brand management and control of distribution channels,” concluded Mr Miller.


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