Is there value in Pelikan?

  • Business
  • Saturday, 11 Oct 2014

CEO Loo Hooi Keat

Pelikan International Corp Bhd is in the final stages of its most significant corporate exercise, which will see it transformed into a holding company with a potential value of over RM1bil.

However, the restructuring plan that Pelikan announced in July seems to have had little impact on its share price, which only perked up briefly last week to a three-month high of RM1.33 on Oct 2.

The next day, StarBiz reported that investor Paul Poh, via his investment vehicle Caprice Capital International Ltd, was looking to buy a block of shares in Pelikan.

This was confirmed in a filing to Bursa Malaysia on Thursday, which saw Caprice Capital emerging as a substantial shareholder of Pelikan with 28.4 million shares or a 5.18% stake.

Part of Pelikan’s restructuring plan is to inject key assets into its Frankfurt-listed subsidiary Herlitz Aktiengesellschaft in return for more equity in the latter. Pelikan is also selling off some non-performing assets that will see it raise more cash.

Despite the unenthusiastic investor response, Pelikan president and chief executive officer Loo Hooi Keat (pic) is confident that the company is set to fly high once the corporate exercise is concluded by early next year.

He sums up the purpose of this whole exercise as: “Pelikan will be the listed holding company of Herlitz, with Herlitz set to drive the business from now on.”

And this is where it gets interesting: If and when the exercise goes through, Pelikan shareholders could be treated to a hefty dividend payout.

“We could potentially return around RM400mil to shareholders in dividends from the cash received,” he tells StarBizWeek.

Such a payout would be equivalent to a whopping 73 sen per share. Pelikan closed up three sen to RM1.18 on Friday.

Pelikan has embarked on a streamlining exercise to inject assets within Pelikan and Pelikan Holding AG (its Swiss listed unit) into Herlitz. All these assets are being valued at around 266 million euros (RM1.19bil).

The end result of this is that Pelikan would receive 266 million new Herlitz shares. Out of this, Pelikan intends to sell around 110 million of those shares, to raise a minimum of RM491.3mil.

Following this sale, Pelikan will hold 65% to 70% in Herlitz, which is one of the few listed stationery companies in Europe.

Asked if Pelikan would be looking to divest its remaining Herlitz stake, Loo says this is something it will consider “if the price is right”.

He notes that most of the top stationery companies in Europe are German-based and that the industry is long poised for consolidation.

The final touches

Loo says the next few months will see the culmination of four years of restructuring so it could get rid of non-profitable units to focus solely on its branding and product development business.

Part of this restructuring plan includes its earlier move to shift Herlitz’s core stationery business into Pelikan, leaving Herlitz with some small capital and providing solely business services.

He says this was the part that took the most work, as it had to revamp the whole point-of-sales systems for its European customers.

“Now, we are looking at the entire group as part of the final restructuring to focus on our brand business. We want to group all the profitable units together and pump it into Herlitz as it is a listed entity,” he says.

Loo says all of Pelikan’s valuable and profit-making assets and sales organisations will be injected into Herlitz, while its other loss-making businesses will be sold for RM150mil to RM200mil.

With Pelikan serving as the holding company, he says it will be down to Herlitz to drive its key stationery business as 60% of its sales are in the highly-profitable European market, which commands 60% to 70% margins.

In contrast, the Asian market accounts for just 10% with the remainder taken up by the Latin American market, which Loo says has recorded annual double digit growth for the past five years.

Despite Herlitz now driving the business, he says its company name will eventually be rebranded under the Pelikan name.

However, he stresses that the products will continue to be sold under the Herlitz, Pelikan and Geha brands as they have high brand value in Europe.

“Pelikan is a German brand. Now the brand is going back to Germany. When we have a clear business structure in Germany, the Herlitz name will be collapsed and we will drive business under the Pelikan brand,” he says.

Cutting out its loss-making parts, says Loo, involves getting out of the hardcopy business by selling off all its five hardcopy plants by next March.

This move began with the announcement of the closure of its Swiss plant last week.

“These are loss-making plants so we want to sell off these assets. The remaining hardcopy plants are in Malaysia, China, Scotland and Czech Republic,” he says.

He says that over the last few years, Pelikan has already paid out around RM100mil as part of restructuring costs as well as retrenched over 500 people.

Loo notes that the restructuring had to happen gradually as it was crucial that the Pelikan and Herlitz brand names were not affected.

He adds that the Pelikan team is also managing Herlitz, with himself serving as the chief executive officer there as well.

“After the 2008 crisis, we had to reassess whether we still wanted to continue our mode of operations. Now we don’t have to worry about the plants and other things dragging us down,” he says.

As part of the corporate exercise, Loo says the money raised will be used for Pelikan’s business development, working capital and to repay RM150mil in bank debt.

As the company progresses, he says it plans a product output ratio of 30% manufactured and 70% sourced instead of the other way around.

He says it is impossible for it to completely get rid of its manufacturing arm as this is needed for its high-end product offerings.

“But we will cut it down so we can really focus on brand distribution and product development going forward,” he says.

Loo says the formal valuation of Herlitz will be done by this week, by a firm that had been appointed by the courts in Germany according to regulations there.

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