Shuanghui International

WH Group at odds with Morgan Stanley over fresh IPO pitch

Morgan Stanley testing waters for investor interest in revived WH Group listing, with pricing as low as 12 times expected earnings

PUBLISHED : Tuesday, 24 June, 2014, 1:20pm
UPDATED : Wednesday, 25 June, 2014, 8:43am

Sino-US pork producer WH Group's on-off Hong Kong offering could come back to the market, but only if the firm and its lead investment bank can agree on terms which could see a new deal priced at a 20 per cent discounted valuation to April's original failed US$6 billion offer.

Two fund managers told the South China Morning Post that US investment bank Morgan Stanley had contacted them to gauge interest in a deal valuing WH shares as low as 12 times estimated 2014 earnings, compared to the 15-21 times earnings the sale was pitched at about two months ago.

However, that pricing - pitched unofficially by the bank to test the waters among potential cornerstone investors - is significantly below what the company's management is prepared to accept, according to a senior source within WH who spoke with the Post on the condition of anonymity.

"An extremely low valuation won't be acceptable to the WH board and shareholders," said the source.

Both Morgan Stanley and WH declined to comment officially on the status of the listing plans.

The listing would aim to raise funds to pay back loans incurred by the formation of WH when Shuanghui, the mainland's top meat producer, bought out US pork supplier Smithfield Foods in a landmark US$4.7 billion deal last year.

The original offering collapsed on a combination of poor market conditions, a disclosure of massive payments to two company executives and conflicting messages to investors from a record 29 investment bank book-runners.

BOC International, Goldman Sachs, Morgan Stanley and UBS were the lead managers of the original April flotation which at first aimed to raise US$6 billion and was eventually scaled back to US$1.9 billion before being scrapped.

The mainland pork giant has not yet officially appointed any bank to revive the deal, said industry sources familiar with the situation.

WH chairman Wan Long was scathing of the April failure, sources close to the firm's board told the Post, blaming it on a lack of coordination between the four lead banks.

Market sources say Morgan Stanley is determined to win a clear mandate to head a new sale. It was the sole adviser on the transaction in 2013 that secured Smithfield for Shuanghui.

One private equity fund source contacted by Morgan Stanley told the Post that the bank had stressed that its communication was a "private and informal" approach to potential cornerstone investors. More cornerstone investors mean a greater likelihood of success for an offer.

It is common for investment banks seeking major mandates to pitch potential investors and counterparties in a bid to present a client with a largely "done deal" to approve.

Fund managers said they had so far received new offering documentation only from Morgan Stanley.

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