KUALA LUMPUR: Can-One Bhd may have lost an opportunity to realise its investment in Kian Joo Can Factory Bhd but it is poised to monetise its food division in a deal with the Retirement Fund Inc, or better known as KWAP.
KWAP confirmed that it is the final stages of completing an acquisition of a 30% stake in Can-One’s wholly-owned dairy manufacturing business, F&B Nutrition Sdn Bhd.
“The board of KWAP has approved in principle the purchase... the acquisition is sizeable for us,” KWAP chief executive officer Datuk Wan Kamaruzaman Wan Ahmad told StarBiz.
KWAP is expected to pay RM280mil for the stake in F&B Nutrition.
F&B Nutrition manufactures sweetened condensed, evaporated and flavoured milk for clients on an original equipment manufacturer basis.
F&B Nutrition generates around half of Can-One’s profits. Can-One has two main businesses – a packaging division that produces tin cans and jerry cans and a food division that processes dairy and non-dairy products.
F&B Nutrition has three factoriesin Kuala Langat, with a total workforce of more than 500 people and its end products are exported to different markets around the world.
The acquisition would value F&B Nutrition at RM933mil, which is higher than Can-One’s market capitalisation of RM776mil. According to previous reports, Can-One had embarked on a sale process of F&B Nutrition and had been seeking a valuation of up to 20 times earnings for the latter, based on targeted profit after tax of RM42mil for the financial year 2015.
Going by that projection, the price at which KWAP is buying F&B Nutrition translates into a value of about 22 times FY2015 earnings. The sale of F&B Nutrition is also said to be a precursor to an initial public offering of the company within a few years.
Can-One is trading at a single digit historical earnings of about eight times, based on Bloomberg data. The shares closed at RM4.04 last Friday.
Kamaruzaman said that the deal would entail some conditions for F&B Nutrition to meet and this in turn could result in KWAP owning up to a 40% stake in the company.
He did not elaborate.
While it is unknown what Can-One plans to do with the cash from the sale, a source said that it could be used to retire some of its debt.
The company is in a net debt position of RM483.5mil.
Notably, Can-One’s 32.9%-owned Kian Joo Can Factory Bhd has called off the takeover plan by Aspire Insight Sdn Bhd.
Kian Joo said that the two parties had mutually agreed for termination and the rationale had something to do with the offer price.
Kian Joo said its performance had improved in the past two financial years.
Kian Joo’s earnings had increased about 26% in the past four years.
“Kian Joo cannot remain at the current valuation of 10 times earnings. The market would eventually re-rate the company at some point,” a source said.
Based on Kian Joo’s market capitalisation of RM1.381bil, Can-One’s 32.9% stake is worth some RM454mil.
Aspire Insight made an offer to take over Kian Joo in November 2013 for RM1.47bil or RM3.30 per share.
Notably, Aspire Insight is a joint venture between the Employee Provident Fund – which owns a 40% stake in the company through its unit Ekuiti Merdu Sdn Bhd – and Can-One Bhd’s former chief operating officer Chee Kay Leong who owns the remaining 60% stake.
Kian Joo had received a higher offer after Aspire Insight made its bidding. The offer was from Japan’s Toyota Tsusho Corp to take up a 51% stake in Kian Joo at RM3.74 per share. But that was rejected by the company.
Can-One bought the remaining 20% stake in F&B Nutrition it did not own last year, giving Can-One 100% ownership over the asset.
The 20% stake of F&B Nutrition was paid for via Can-One shares valued at RM112.9mil. This means that that transaction valued F&B Nutrition at RM564.5mil in early 2015.