SINGER (M) Sdn Bhd, one of the retail chains of tycoon Tan Sri Vincent Tan has come one full circle. In the latest corporate exercise, the major shareholder of Berjaya group has proposed that his flagship company – Berjaya Corporate Bhd (Bcorp) acquires Singer.
Once again he has left the market wondering why he would want to put Singer into Bcorp, which he substantially owns directly, when a previous listing exercise of the retail chain was not well received.
In 2010, Tan astonished the market when he dramatically announced the privatisation of Berjaya Retail Bhd (Bretail), just seven months after its listing. Bretail’s two business arms were Berjaya Singer and 7-Eleven chain of convenient stores.
This listing and taking it private just seven months later was probably the fastest exit of a company from Bursa Malaysia. It caught the market by surprise as Tan is known for his penchant in retail driven businesses.
Tan used to own Digi.com Bhd, which he eventually sold to the Telenor group. Those close to him recall that it was one of his best investments and had to give it up because of his other financial commitments.
Nevertheless, Tan has a second bite of the cherry in the telecommunication company as he substantially owns U-Mobile, the fourth biggest player in the market.
Coming back to BRetail, it has been said that Tan privatisated it in less than a year after it was listed due to the market not giving the company the value.
“Margins were thin, especially for 7-Eleven while Singer competes in a highly competitive market that offers various kinds of consumer goods on hire-purchase terms. But now in an e-commerce environment, any company with a distribution reach has value, ” says a retail industry observer.
Some among the investment community also point out that Tan is now taking advantage of the stronger and resilient market sentiments on e-commerce and distribution chain to put Singer into Bcorp.
In his privatisation episode of BRetail back in the beginning of 2011, Tan had offered 65 sen per BRetail share and ICPS, which is a premium of 30% over its IPO price.
Tan had reportedly forked out around RM145mil for the remaining shares in BRetail that he did not own.
Because he also got a gain of around RM53.4mil from BRetail’s IPO exercise just months earlier then, the total net amount that Tan was estimated to have incurred to privatise BRetail then was reportedly RM91mil.
This time around, the re-listing of Singer would see BCorp paying a net amount of RM388mil for the 100% of Singer from the privately- held BRetail.
The amount is after netting off RM148mil that is due to Singer from Tan’s private company.
The balance purchase consideration of RM388mil is to be paid in Bcorp shares issued at a premium.
Tan currently owns slightly over 26.77% in deemed interest in BCorp, according to most recent filings to the Bursa Malaysia. If the deal goes through, his stake will increase.
BCorp’s purchase of Singer for a net sum of RM388mil comes with a RM20mil profit guarantee per annum. This effectively values the deal at close to 20 times price earnings (PE) multiple.
An investment banker says that there are very few comparisons to Singer, which is a pure retail play with easy financing payments.
The closest competitor to Singer was Courts Mammoth Bhd that was privatised in 2007 after it started to make losses.
At the moment, among the listed companies with exposure to electrical and household appliances business are Fiamma Holdings Bhd and Aeon Co (M) Bhd. The valuation varies between eight times PE to 17 times PE.
“So Singer’s valuation is little on the higher side. But the shares are also issued at a premium, ” says the investment banker.
BCorp reasons that the proposed purchase of Singer allows the group to enhance its profile and complements BCorp’s diverse range of businesses.
Nevertheless, if the deal goes through, Singer comes back one full circle into BCorp.
BCorp initially acquired Singer in 1989 from SSMC Inc, the parent company of Singer then. Singer, which is popular for its sewing machines, is today a varied consumer durables company that also sells other products.
Singer under the company name Singer (M) Sdn Bhd was subsequently sold to BRetail when the latter was to be listed back in the middle of 2010. Singer was reportedly sold for RM360mil to BRetail through the issuance of new and irredeemable convertible preference shares (ICPS) then.
The shuffling of Tan’s retail businesses does not end with Singer and BCorp. 7-Eleven Malaysia Holdings Bhd, another retain arm substantially owned by Tan, is privatising Caring Pharmacy Group Bhd.
Caring, a pharmaceutical and healthcare related company into the stable of 7-Eleven would help the latter be a more formidable force in the highly competitive and low margin convenience store business.
But would Singer bring about the same impact in BCorp?