Following is Bernama's question-and-answer session with Johor Menteri Besar and Chairman of Johor Corporation (JCorp) Datuk Abdul Ghani Othman on KFC Holdings Bhd and QSR Brands Bhd privatisation.
Q1: How does JCorp aims to acquire KFC Holdings Bhd (KFC) and QSR Brands Bhd (QSR)?
A: JCorp proposes to acquire 100 per cent of KFC's and QSR's business and undertakings through a special-purpose vehicle, Massive Equity (ME) Sdn Bhd. Massive Equity is majority-owned by JCorp (51 per cent) with CVC Capital Partners (CVC) owning 49 per cent. The offers were made at a price equivalent to
RM4 per KFC share and RM6.80 per QSR share. When the transaction is completed, JCorp's stake in KFC will increase from 17 per cent to 51 per cent, while its interest in QSR will increase from 33 per cent to 51 per cent.
Q2: Have KFC and QSR accepted the ME (JCorp/CVC) offer?
A: Both the KFC and QSR boards have given the greenlight to the buyout offer made by JCorp and CVC, seven days after the offer was made; and their respective boards have also stressed that they are not seeking alternative bids from other parties. The next step is for the proposal to be presented to the shareholders of KFC and QSR for their approval.
Q3: What is the rationale behind the ME offer for KFC and QSR? Who is driving this transaction and what are the benefits?
A: This is part of the overall JCorp rationalisation programme for its various divisions to focus on their core businesses. For example, via this restructuring, Kulim would exit the food retail business and focus on plantations. In fact, JCorp is reviewing all of its assets with a view to making them more efficient, while growing them in a focused manner and generating greater value.
JCorp is a state-owned entity and the Johor State Government is driving the overall rationalisation programme (including this transaction) to ensure the long-term sustainability of JCorp. We want JCorp to be a profitable SEDC, enabling it to play a significant socio-economic role in the state for the benefit of the rakyat. The transaction allows JCorp to directly access the
cashflow of the two businesses compared to the current convoluted structure.
Q4: Why was CVC enlisted by JCorp to participate as its minority
partner in this transaction?
A: CVC was brought in to help further improve the businesses of KFC and QSR. They were chosen carefully (among various alternatives) based on their strong track record and vast experience in managing similar businesses and investing in our region. They are friendly value-added partners who will work
with us to ensure an even better KFC and QSR in the future.
Q5: Will JCorp incur any new debts from KFC and QSR acquisition?
A: This acquisition will be funded via a combination of cash (equity) and debt. However, the debt we are incurring is not at JCorp itself. Rather, it is at the acquisition company level, relying on the strength of the cash flow of the two businesses.
In addition, JCorp's current debt is being resolved. For example, JCorp's sale of palm oil plantations to Kulim (which was recently approved) is part of our plan to fulfil JCorp's 2012 debt obligations.
The RM700 million cash accruing from the estates sale is the first part of the expected RM1 billion cash to be generated for debt repayment prior to July 31, 2012 (being the due date for the bond repayment). The balance of RM300 million will come from internally-generated funds. As for the remaining JCorp
debt obligations, we are finalising the repayment plan with advice from CIMB as our financial advisor. As part of the exercise, CIMB and Maybank will act as Joint Lead Managers for the issuance of new bonds in 2012.
Q6: Is this move a sell-out to outsiders and foreigners by JCorp as alleged by the Malay Chamber of Commerce?
A: This is not a sell-out to foreigners or outsiders. On the contrary, JCorp is actually privatising QSR and KFC to keep it within JCorp directly, whilst at the same time increasing JCorp's holdings in QSR and KFC from 33 per cent and 17
per cent, respectively, to a majority of 51 per cent.
This is merely an internal reshuffle to make the corporate structure of JCorp Group more efficient. The move will also present Kulim Berhad, which is currently the controlling shareholder of QSR, an opportunity to dispose its
stake in the food retail business and focus on its core plantation business.
Q7: Does JCorp plans to retain KFC and QSR within the group or farm them out to other bidders?
A: JCorp Group has always maintained that it intends to keep the two businesses within the group believing in their long-term value. JCorp does not intend to sell this assets or flip them to a third party or strip their assets for cash. The entire transaction is premised on keeping the asset within the
group. So it is baseless to claim otherwise. Had the intention been different, the businesses would have been sold much earlier.
Q8: Are QSR and KFC considering other offers?
A: In addition to JCorp's clear message that it won't sell, the intention not to entertain any other bids has also been made clear by both the KFC and QSR boards.
Q9: Will this move in any way harm Bumiputeras and/or the people's interests?
A: I wish to state clearly that KFC is a franchisee, so it is not a Bumiputera-only outlet, nor is it stated anywhere that it should only be owned by Bumiputeras. It is open to everyone. On the other hand, JCorp as a state government agency will continue to safeguard the interests of the rakyat, including in developing the Bumiputera community through various means. It has achieved many successes in this field and will continue to do so, not least by being more focused and profitable in its core businesses.
Q10: Is there any other "cheaper" way to execute the proposed acquisitions as claimed by some quarters?
A: There is no cheaper way for a third party to acquire QSR and KFC. Of course, acquiring Kulim's shares (as proposed by the Malay Chamber) may appear to be a way to gain control of QSR and thereby KFC. But for that to happen, Kulim and JCorp will first have to agree to sell to a third party. They are not interested to do so.
Nonetheless, even if that route was pursued by say the Malay Chamber, there is no cheaper way. It will still cost the Malay Chamber and its partners the whole amount, as acquiring Kulim's stake in QSR will trigger a mandatory general offer for the remaining shares held in QSR. It will also trigger a general offer on KFC shares as well. Essentially, the end effect is that you will have to acquire 100 per cent of both entities. So, certainly the RM1 billion or so proposed will not be sufficient. -- Bernama
Q1: How does JCorp aims to acquire KFC Holdings Bhd (KFC) and QSR Brands Bhd (QSR)?
A: JCorp proposes to acquire 100 per cent of KFC's and QSR's business and undertakings through a special-purpose vehicle, Massive Equity (ME) Sdn Bhd. Massive Equity is majority-owned by JCorp (51 per cent) with CVC Capital Partners (CVC) owning 49 per cent. The offers were made at a price equivalent to
RM4 per KFC share and RM6.80 per QSR share. When the transaction is completed, JCorp's stake in KFC will increase from 17 per cent to 51 per cent, while its interest in QSR will increase from 33 per cent to 51 per cent.
Q2: Have KFC and QSR accepted the ME (JCorp/CVC) offer?
A: Both the KFC and QSR boards have given the greenlight to the buyout offer made by JCorp and CVC, seven days after the offer was made; and their respective boards have also stressed that they are not seeking alternative bids from other parties. The next step is for the proposal to be presented to the shareholders of KFC and QSR for their approval.
Q3: What is the rationale behind the ME offer for KFC and QSR? Who is driving this transaction and what are the benefits?
A: This is part of the overall JCorp rationalisation programme for its various divisions to focus on their core businesses. For example, via this restructuring, Kulim would exit the food retail business and focus on plantations. In fact, JCorp is reviewing all of its assets with a view to making them more efficient, while growing them in a focused manner and generating greater value.
JCorp is a state-owned entity and the Johor State Government is driving the overall rationalisation programme (including this transaction) to ensure the long-term sustainability of JCorp. We want JCorp to be a profitable SEDC, enabling it to play a significant socio-economic role in the state for the benefit of the rakyat. The transaction allows JCorp to directly access the
cashflow of the two businesses compared to the current convoluted structure.
Q4: Why was CVC enlisted by JCorp to participate as its minority
partner in this transaction?
A: CVC was brought in to help further improve the businesses of KFC and QSR. They were chosen carefully (among various alternatives) based on their strong track record and vast experience in managing similar businesses and investing in our region. They are friendly value-added partners who will work
with us to ensure an even better KFC and QSR in the future.
Q5: Will JCorp incur any new debts from KFC and QSR acquisition?
A: This acquisition will be funded via a combination of cash (equity) and debt. However, the debt we are incurring is not at JCorp itself. Rather, it is at the acquisition company level, relying on the strength of the cash flow of the two businesses.
In addition, JCorp's current debt is being resolved. For example, JCorp's sale of palm oil plantations to Kulim (which was recently approved) is part of our plan to fulfil JCorp's 2012 debt obligations.
The RM700 million cash accruing from the estates sale is the first part of the expected RM1 billion cash to be generated for debt repayment prior to July 31, 2012 (being the due date for the bond repayment). The balance of RM300 million will come from internally-generated funds. As for the remaining JCorp
debt obligations, we are finalising the repayment plan with advice from CIMB as our financial advisor. As part of the exercise, CIMB and Maybank will act as Joint Lead Managers for the issuance of new bonds in 2012.
Q6: Is this move a sell-out to outsiders and foreigners by JCorp as alleged by the Malay Chamber of Commerce?
A: This is not a sell-out to foreigners or outsiders. On the contrary, JCorp is actually privatising QSR and KFC to keep it within JCorp directly, whilst at the same time increasing JCorp's holdings in QSR and KFC from 33 per cent and 17
per cent, respectively, to a majority of 51 per cent.
This is merely an internal reshuffle to make the corporate structure of JCorp Group more efficient. The move will also present Kulim Berhad, which is currently the controlling shareholder of QSR, an opportunity to dispose its
stake in the food retail business and focus on its core plantation business.
Q7: Does JCorp plans to retain KFC and QSR within the group or farm them out to other bidders?
A: JCorp Group has always maintained that it intends to keep the two businesses within the group believing in their long-term value. JCorp does not intend to sell this assets or flip them to a third party or strip their assets for cash. The entire transaction is premised on keeping the asset within the
group. So it is baseless to claim otherwise. Had the intention been different, the businesses would have been sold much earlier.
Q8: Are QSR and KFC considering other offers?
A: In addition to JCorp's clear message that it won't sell, the intention not to entertain any other bids has also been made clear by both the KFC and QSR boards.
Q9: Will this move in any way harm Bumiputeras and/or the people's interests?
A: I wish to state clearly that KFC is a franchisee, so it is not a Bumiputera-only outlet, nor is it stated anywhere that it should only be owned by Bumiputeras. It is open to everyone. On the other hand, JCorp as a state government agency will continue to safeguard the interests of the rakyat, including in developing the Bumiputera community through various means. It has achieved many successes in this field and will continue to do so, not least by being more focused and profitable in its core businesses.
Q10: Is there any other "cheaper" way to execute the proposed acquisitions as claimed by some quarters?
A: There is no cheaper way for a third party to acquire QSR and KFC. Of course, acquiring Kulim's shares (as proposed by the Malay Chamber) may appear to be a way to gain control of QSR and thereby KFC. But for that to happen, Kulim and JCorp will first have to agree to sell to a third party. They are not interested to do so.
Nonetheless, even if that route was pursued by say the Malay Chamber, there is no cheaper way. It will still cost the Malay Chamber and its partners the whole amount, as acquiring Kulim's stake in QSR will trigger a mandatory general offer for the remaining shares held in QSR. It will also trigger a general offer on KFC shares as well. Essentially, the end effect is that you will have to acquire 100 per cent of both entities. So, certainly the RM1 billion or so proposed will not be sufficient. -- Bernama
