Special purpose vehicle set up in RM5.24bil KFC-QSR deal

  • Business
  • Thursday, 15 Dec 2011

KUALA LUMPUR: Johor Corp (JCorp) and CVC Capital Partners, a global private equity firm, are offering to privatise KFC Holdings (M) Bhd and parent QSR Brands Bhd at an estimated RM5.24bil or RM4 per KFC share and RM6.80 per QSR share.

The exercise would be conducted through a special purpose vehicle, Massive Equity Sdn Bhd, with CVC eventually holding a 49% stake in both businesses that operate more than 900 KFC and Pizza Hut fast food outlets in South-East Asia and India.

According to Bloomberg calculations, the deal, excluding warrants, would cost more than RM5.24bil (US$1.6bil).

Shares of Kulim, QSR and KFC were suspended yesterday upon their request to Bursa Malaysia,

Massive Equity, in a statement, also proposed that:

KFC and QSR each implement a warrant holders' scheme to buy back all outstanding warrants, based on RM1 per KFC warrant and RM3.79 per QSR warrant respectively. CIMB Investment Bank Bhd has been appointed the financial adviser to Massive Equity.

KFC and QSR carry out capital repayments and/or pay special dividends to return substantially all amounts received from the acquisition of the two companies.

“KFC and QSR businesses will be merged into an enlarged regional food retailing business,” JCorp said. “Given the current outlook and volatility of the equity markets, both the KFC and QSR offer prices are considered attractive. The offer price for QSR is higher than previously offered made by other interested parties,” it added.

On Tuesday, QSR and KFC's shares last traded at RM6 and RM3.41 respectively; the offer represents a privatisation premium of 13.33% and 17.3% to their last traded price on Tuesday.

Based on KFC's weighted average price of RM3.38 for the last three months up to and including Dec 13, 2011, the offer price represented a premium of 18%; meanwhile, based on its weighted average price of RM5.68 for the last three months up to and including Dec 13, 2011, the QSR offer price represents a premium of 20%, JCorp said.

A JCorp spokesperson said this was part of the bigger restructuring plan that JCorp was undergoing and aimed at streamlining its businesses; the shareholding structure, at the moment, was convoluted and thus hindered effective management of its businesses.

“This will facilitate fundraising and the leveraging of operating assets which is part of JCorp's overall rationalisation programme; at the same time, it will also address the debt issue at JCorp,” he said in an interview. JCorp has debt obligations of RM3.6bil that will mature in the middle of next year.

The spokesperson added that CVC, which also has interests in the food and beverage as well as retailing industries will participate actively in the management of both the businesses of KFC and QSR.

“We will work closely with CVC to create value by enhancing the operational and financial perfomance of the businesses,” he added.

Analysts said it was an attractive offer for short-term investors who had gained on a good low entry price into the stock. However, some said the deal could be sweetened further, given that KFC was a growth stock with exposure to countries with attractive demographic fundamentals such as India, Singapore and Brunei.

It is also learnt that KFC is expanding further into Cambodia and Vietnam.

“QSR and KFC are the jewels in the crown of JCorp and I am not surprised that this offer had been made. However, investors may want to think of the growth potential of these companies before agreeing to the deal,” an analyst with a local bank-backed brokerage said.

“In the interest of minority shareholders, they may want to push for a deal at a higher price. I doubt the deal would go through so easily, given the good brand positioning potential that KFC and Pizza Hut has in the Asian region.

“The future looks bright and the stock's fundamentals are sound, so investors should hold out for a better price,” said another analyst.

CIMB said in a note to investors that it was not entirely surprised by this offer, given the present convoluted shareholding structure from JCorp all the way to KFC.

JCorp owns 55.9% of Kulim, which owns 53.9% of QSR, which in turn, has a 50.93% stake in KFC.

CIMB said a buyout of QSR and KFC would increase the dividends and cashflows that JCorp earns from KFC.

“JCorp has RM3.6bil of bonds maturing in July 2012. The buyout of both QSR and KFC and the resultant higher dividends and cashflows will help greatly in refinancing the bonds and servicing future interest payments,” CIMB said in its investor alert note.

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