Lion Forest sells Silverstone to Toyo Tire for RM462mil

PETALING JAYA: Lion Forest Industries Bhd, owned by Lion Group, is selling its local tyre manufacturer Silverstone Bhd for RM462mil to Japan’s Toyo Tire & Rubber Co Ltd, as Lion Forest looks to realise and unlock the value in Silverstone and make a gain of RM140mil from the sale.

In a filing to Bursa Malaysia yesterday, Lion Forest said its subsidiary Silverstone Corp Bhd was looking to dispose of its entire stake, or 203.88 million shares of RM1 each in Silverstone. Silverstone has a paid-up capital of RM203.88mil.

“Lion Forest will utilise part of the proceeds to settle the Intercompany amount (which was RM22.5mil as at June 30, 2010). The utilisation of the balance proceeds will be determined at a later date,” Lion Forest said in the announcement.

The gain of RM140mil will be reflected in Lion Forest’s financial year ending June 30, 2011, which translates to an increase in earnings per share of 60 sen per share. The disposal will also improve the group’s gearing from 0.05 times to 0.03 times.

Sources close to the deal said Lion Group is selling its tyre unit to raise cash to fund other core businesses such as steel and retail.

Toyo Tire, which operates in over 100 countries, is involved in the sales and manufacturing of automobile tyres, industrial rubber, soft and rigid polyurethane products, and automotive anti-vibration rubber. Listed on the Osaka, Tokyo and Nagoya stock exchanges, the company has a market capitalisation of RM1.6bil as at Oct 21, 2010.

“The cash transaction is expected to be completed by January next year and Toyo Tire will be funding the deal through internal funds. Silverstone’s price/earnings multiple is 13.7 times financial year 2010 earnings,” sources told StarBiz yesterday.

Sources added that the price to book ratio was 1.6 times.

Silverstone recorded a 6% rise to RM433.49mill in sales and saw net profit double to RM33.57mil for the fiscal year ended June 30, 2010 from a year ago. Its net asset stood at RM285.67mil for fiscal year 2010.

This will be Toyo Tire’s first cross-border acquisition as it seeks to make a full-scale entry into the fast-growing South East Asia market.

Toyo Tire, which is said to be the fourth largest tyre manufacturer in Japan, plans to commence production of Toyo and Nitto brand tyres in Silverstone as soon as practicable, while using Malaysia as its export distribution hub for Asia.

In a press release issued yesterday, Toyo said it aimed to further improve the quality of the Silverstone brand tyre, with the goal of expanding sales throughout Asia.

Silverstone, which has a diversified motor vehicle tyre portfolio, exports to more than 60 countries from South America to the Baltic countries, throughout Asia, Europe, Africa, Australia and the Middle East. Its annual production capacity in Malaysia is 3 million units.

In line with its global plan, Toyo Tire said in the release that it is now at work on the third phase expansion of the Toyo Tire North America Manufacturing Inc facility in the United States, and has commenced construction of a China tyre manufacturing plant at Toyo Tires Zhangjiagang Co, Ltd.

Toyo Tire is still assessing the impact, if any, that the acquisition of Silverstone may have on its earnings for the year ending March 31, 2011.

Nomura Securities Co Ltd was the sole financial advisor to Toyo Tire while ING Corporate Advisory (M) Sdn Bhd was appointed the financial advisor for proposed disposal.

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