BJCorp
What’s Up? … dated Sept 2009
Berjaya Corp Bhd (BCorp) has proposed the relisting of Singer (M) Sdn Bhd and 7-Eleven (M) Sdn Bhd on Bursa Malaysia under Berjaya Retail Bhd (BRetail).
Several large companies have proposed listing their subsidiaries. They include Singapore-based Wilmar International Ltd which is listing its China arm and Maxis Communications Bhd which is listing its Malaysian arm.
The group is planning an IPO for its chain of convenience stores numbering 1,068 outlets. Together with Singer’s existing chain, BRetail will have under its umbrella 1,500 outlets with revenue of close to RM1.5 billion.
In the restructuring prior to listing, BCorp will sell Singer to BRetail for RM360 million and 7-Eleven will be transacted for RM600 million. The price was based, among others, on the forecast pre-tax profit of the two companies for the year ending Dec 31, 2009 and represented a price-earnings multiple of 23.5 times.
BRetail will pay for the assets by issuing new shares, irredeemable convertible preference shares (ICPS) and assume debts owed by BCorp or its related companies to Singer and 7-Eleven.
In a move to reward shareholders, BCorp proposed a dividend-in-specie of one BRetail share for every 10 BCorp shares. The number of BRetail shares to be distributed as dividend-in-specie is expected to be between 337.6 million and 471.9 million shares depending on the share capital of BCorp.
BCorp proposed to dispose of its residual BRetail shares, amounting to 101.88 million shares at 50 sen each, in an offer-for-sale exercise to approved bumiputera investors, bumiputera public, shareholders of BCorp, the general public and employees of BCorp and BRetail.
The largest chunk of 91.87 million shares is allocated to approved bumiputera investors. The company envisaged the proposed dividend in-specie and proposed offer for sale will enable BRetail to meet the public spread requirement of 25%.
Barring any unforeseen circumstances, the proposed listing is expected to be completed in the first quarter of next year (2010).
Financial Results … It posted a year-on-year growth of 23.9% in net profit to RM40.88 million for its first quarter ended July 31, 2009 despite losses arising from dilution of interest and partial disposal of investment in subsidiary companies.
The loss on dilution of interest in subsidiaries reported at RM49.97 million and loss on partial disposal at RM24.6 million were offset by the writeback of impairment in value of associated companies and other quoted investments, gains on sale of quoted investments totalling RM66.57 million as well as recognition of negative goodwill of RM12.3 million.
Together with higher sales from the consumer marketing business, higher brokerage and investment income from the financial services division, and higher profits from the gaming business from lower prize payout, pre-tax profit grew 34.7% to RM184.3 million from the year-ago period.
The earnings growth came on the back of an 8% higher revenue of RM1.61 billion. This was attributed to higher contributions from the consumer marketing business, especially Cosway (M) Sdn Bhd from both Malaysia and overseas markets of mainly Hong Kong and Taiwan , as well as the property development business.
Earnings per share in the quarter rose 0.18 sen to 1.04 sen compared to the same period a year ago. No dividend was declared for the quarter.
Going Forward …
Although BJcorp’s shareholders would stand to gain a dividend-in-specie of one BRetail share for every 10 BJCorp shares from the listing of BRetail, the biggest winner that is likely to emerge from this deal is BJCorp’s chairman Tan Sri Vincent Tan. This is primarily on account that Tan will be able to realize his investments from BRetail’s acquisition of 7 eleven Sdn Bhd.
Prior to listing, BRetail will also buy Singer Sdn Bhd from BJCorp’s subsidiary Cosway Sdn Bhd. The two purchases are to paid by BRetail in shares, preference shares and some cash.
A salient point is that Tan is injecting his privately 7 eleven into BJCorp. Also to be noted is that the acquisitions are mainly in shares, which means the recipients, including Tan will have to ride along with the fortunes of the company.
Effectively, BRetail’s acquisitions price in Singer and 7 eleven will be 23.5 times PE multiples their net profits forecasts. The valuation based on prospective earnings is higher when compared with the two companies’ indirect peers.
Tan is effectively owns the entire stake in 7 eleven via a slew of private companies.
Upon listing, Tan will own more than a 50% stake in the company, held through his family companies and BJCorp. Assuming that all the ICPS are converted, his interests in BRetail will rise between 73.8% and 83.38%.
But it will be interesting to look at the appreciation in investments that Tan will realize on completion of the deal against his initial investments … six times more for 7 eleven and more than RM220 million gains for Singer.
Considering the prices at which BRetail acquired the asserts, a question that arises is whether that these companies will be able to justify the valuations.
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