KUALA LUMPUR: Analysts are doubtful the tight deadline for the joint takeover offer of QSR Brands Bhd and KFC Holdings (M) Bhd (KFCH) by Johor Corp (JCorp) and private equity firm CVC Capital Partners Asia III Ltd’s Massive Equity Sdn Bhd will be met.
“If they cannot get the board to accept the offer and fulfil all of its conditions in one week [deadline is Dec 21], they stand to lose the deal,” said an analyst with a bank-backed research house.
“Also, the interested parties from the previous two bids may decide to rejoin the bid with possibly higher bids,” he added.
Tan Sri Halim Saad and The Carlyle Group bid for QSR late last year, offering RM5.60 and and then upping the bid to RM6.70 per share. Both offers were rejected by both Kulim (M) Bhd and QSR’s management.
“It is hard to say [for certain] if they will rejoin the biding as the current offer is at 20 times FY12 price-earnings ratio (PER),” he said, adding, “It is no longer cheap.”
Still, it should be noted that just 10 sen separates Carlyle’s previous offer of RM6.70 and JCorp’s latest offer of RM6.80 per share for QSR.
The acquirers need to secure the approval of at least 75% of minority shareholders in order for the deal to materialise.
In a research note, Foong Wai Mun, food and beverage analyst at CIMB IB Research, believes the deal is likely to get the nod from KFC’s franchisor, Yum! Brands, Inc given that JCorp will still be driving the operations.
Foong along with other industry analysts agree the offer of RM6.80 and RM4 per share for QSR and KFCH respectively was a fair and attractive offer.
“Especially in the current volatile market conditions, investors may view the 13.3% premium as attractive. However, some investors may lament the lack of investment opportunities in strong consumer franchisers like QSR after this sale,” he added.
In terms of PER valuations, this offer is higher than Kulim’s first offer to privatise Sindora Bhd (about 15 times FY11 PER) but lower than what Asahi paid for Permanis (about 24 times FY12 PER), noted Kang Chun Ee of Maybank IB Research in his report.
“Valuations as such are about in line with consumer peers and this is a decent offer in our view,” he added.
“As this is an offer for KFCH’s business, an uncertainty this stage is how KFCH would deal with the funds once the exercise is completed, though the logical step would be to distribute the entire proceeds back to the shareholders,” Kang said.
Foong, however, said if JCorp and CVC Capital are serious about buying the assets and liabilities, there may be a sweetener in the form of a special dividends to entice the minority shareholders to vote for the deal in the upcoming EGM.
If the deal materialises, analysts said that both QSR and KFCH will have cash totalling RM3.2 billion and RM2.1 billion respectively as they will be left as shell companies.
Thereafter, analysts believe both companies may be classified as PN17 companies and will be required to acquire other businesses within one year to regularise their listing status.
The bulk of the sale proceeds are expected to be distributed back to shareholders in the form of capital repayment and special dividend.
JCorp has large debts, including RM3.6 billion due in July 2012, which an analyst says can be serviced more easily if KFCH’s dividends and cash flows accrue directly to JCorp rather than through different layers of holding companies.
JCorp’s effective interest in QSR, once the exercise is completed, will increase to 51% from 30% while its stake in KFCH will rise to 51% from 15%. At present, JCorp owns a 57.05% stake in Kulim, which in turn holds 58.78% of QSR. QSR is the major stakeholder of KFCH with a 50.64% stake.
On the contrary, in a report by Alvin Tai of OSK Research on Kulim, he noted that this seemed like an unusual move on the part of debt-saddled JCorp to take over QSR and KFCH.
However, this exercise will be carried out together with CVC, a sizeable private equity firm, he added. “We believe JCorp may have struck a back-to-back agreement with CVC or another party to flip QSR/KFCH at a higher price,” he said.
Viewed together with JCorp’s sale of 13,687ha of oil palm estates to Kulim, this is essentially an asset swap between Kulim and JCorp, which will transform Kulim into an even purer plantation play, he explained.
At the closing bell yesterday, the JCorp stable of companies — QSR, KFCH and Kulim— were among top five gainers on Bursa Malaysia bucking the downward trend on the local bourse.
QSR closed up 44 sen to RM 6.44, KFCH increased 39 sen to RM3.80 and Kulim rose 28 sen to RM 3.97.
This article appeared in The Edge Financial Daily, December 16, 2011.
