HEDGE funds are set to make a 60 per cent return on a last-minute investment in beleaguered bread and spreads maker Goodman Fielder after taking advantage of uncertainty over a $1.3 billion offer from Singapore oils trader Wilmar International and Hong Kong investment company First Pacific.

Goodman Fielder shares jumped 3¢ or 4.7 per cent to 67¢ on Monday – their highest level since May last year – after Wilmar and First Pacific finally secured Chinese government approval for their 67.5¢ a share cash offer, which has been dragging on since April 2014.

The Anti-Monopoly Bureau of China’s Ministry of Commerce (MOFCOM) approved the deal on the eve of the Chinese New Year holiday period, leaving approval from New Zealand’s Overseas Investment Office (OIO) as the last remaining regulatory hurdle.

If OIO approval is forthcoming, and Goodman Fielder’s minority shareholders approve the offer at a meeting on February 26, hedge funds who snapped up more than 160 million Goodman shares late last week stand to make a profit of 3.5¢ a share – an annualised return of around 60 per cent.

Most of the shares traded last week were sold by 8.13 per cent shareholder Ellerston Capital, which is believed to have sold most of its remaining stake before waiting to find out if MOFCOM and OIO would approve the deal.

Ellerston sold a 5 per cent stake to Wilmar and First Pacific in May last year for 70¢ a share. Perpetual Investments also sold 5 per cent last May, enabling Wilmar and First Pacific to lift their combined holding from 11 to 19.9 per cent, conditional on Foreign Investment Review Board approval.

The FIRB approved the deal in December, saying it had no objection to the takeover of one of Australia’s largest food manufacturers, but New Zealand’s OIO has yet to decide.

Sources close to the bidders believe that the delay is due to changes in ministerial portfolios after the New Zealand general election in September.

While Goodman Fielder is one of New Zealand’s largest companies, employing more than 2000 people across its baking, grocery and dairy food businesses, it has no significant land or agriculture holdings that would be of concern to the OIO.

Deutsche Bank analyst Michael Simotas said the MOFCOM approval had significantly reduced the risk of the deal not proceeding, saying the lengthy delay was “not a good sign”.

“The NZ OIO approval remains outstanding and while it is not a certainty, in our view the risk of rejection is relatively low,” Mr Simotas said.

If OIO approval is not received by February 26, Goodman Fielder may postpone the shareholder vote or hold the meeting but make the resolution conditional on OIO approval.

The scheme of arrangement is due to expire on March 31. If regulatory approval has not been achieved by that date, Goodman, Wilmar and First Pacific can let the scheme lapse, agree to extend the scheme while waiting for clearance or renegotiate a new scheme.

Wilmar and First Pacific will not be able to vote their stake, leaving the outcome largely in the hands of Goodman Fielder’s retail shareholders.

The Goodman Fielder board has recommended shareholders vote in favour of the scheme, in the absence of a superior proposal. The Australian Shareholders Association has recommended retail shareholders accept the offer and proxy advisers have advised institutional investors to accept, saying the offer raises no governance issues.

Last week, Goodman allayed investor fears that a price war in the $2 billion bread market could jeopardise the deal by decimating earnings and triggering a get-out clause in the scheme of arrangement.

A material adverse change clause gives the bidders the right to walk away if Goodman’s recurring earnings fall $30 million this year or the value of net assets falls by $100 million.

While Goodman’s baking earnings fell 54 per cent and grocery profit fell 13 per cent in the first half, EBIT from New Zealand dairy operations rebounded 74 per cent and Asia Pacific profit rose 12 per cent. Group underlying EBIT rose 5 per cent, excluding recent asset sales, and underlying net profit slipped 1 per cent to $29 million.

While the June half is expected to remain tough, Goodman chief executive Chris Delaney has said he is comfortable with full-year consensus forecasts, which forecast earnings before interest and tax of $160 million and an underlying net profit of $66 million.

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