Friday, November 26, 2010

Carlyle Knows Where Malaysia Is

When we travel overseas, many times we get flustered when people don't even know where Malaysia is located. Usually we end up explaining its that mass of land between Thailand and Singapore. Well, fret no more, the giant private equity unit with possibly the world's most connected retired personalities, is making a bid for QSR.

Ambank Research:

Kulim (M) Bhd (BUY, KULIM Mk Equity), parent company of QSR Brands Bhd (QSR Mk Equity, Non-rated) which in turn has 51% control of KFC Holdings Bhd (KFC), announced that it has received a non-binding offer for the entire 100% stake in QSR from Carlyle Asia Investment Advisors Ltd, on behalf of the Carlyle Group.

• No timeframe was disclosed for the proposed take-over bid, while trading of KFC shares has been suspended until further notice.
• The proposed take-over price of QSR by the Carlyle Group is RM6.70/share. This
represents an 18% premium to the earlier indicative proposed price of RM5.60/share offered by Idaman Saga Sdn Bhd. Recall, Idaman Saga, owned by Tan Sri Halim Saad and Datuk Che Mokhtar Che Ali, had back on 19 November 2010 offered to acquire QSR’s entire business and undertakings.
• We view Carlyle Group’s proposed take-over positively. At RM6.70/share, this translates to a 5% premium to our intrinsic valuation for QSR, as stated in our report on Kulim dated 19 November 2010.
• The Carlyle Group was founded in 1987 and has more than US$98bil of funds under management in multi-industries globally - from aerospace & defence to technology and healthcare. The Carlyle Group’s consumer & retail portfolio lists 38 varieties of companies worldwide.
• A change in ownership could be beneficial to KFC, as the group would be unencumbered with further related-party transactions involving ultimate parent company, Johor Corporation. RPTs involving the group and Johor Corp companies amounted to RM28mil as of July FY10.
• No change to our BUY recommendation with an unchanged fair value of RM4.15/share based on PE of 20x FY11F earnings, pending further corporate developments. The proposed takeover by Carlyle Group is also subject to approval by KFC franchisor Yum! Brands Inc.

As a side issue, my initial reaction is why doesn't a Malaysian company or government vehicle buys QSR (Halim Saad does not count). Then I came to the conclusion that it should not matter. It is not a time nor the place for nationalistic fervour. I do agree that there are certain assets that should not be controlled by foreign interests such as utilities, military or services that are critical to the country. Anything else should be fair game.

If we wish to be an open economy and attract foreign investments, we have to be open to foreign buyers for our banks or even jewels such as KFC (don't ask why I think KFC is a jewel la...). We should welcome FDI in any form as long they are in for the long haul.

My view on QSR or KFC is that there is upside from here on, but you have to hold for a couple of years to see substantive returns. I think investors in general are still not fully appreciative of its India link up.


bonny b said...

Dear Dali,
In all your corp finance wisdom, can u pls enlighten us as to what is a 'non-binding' take-over offer?
Many thanks in advance.

Wall Street KLCI said...

Seems like QSR is poised to be the top gainer of the day... +46 sen so far as of 945am

One Shot said...

Dali,we are losing good PLC's very fast to takeovers and very soon there won't be enough good bluechips left to put your money in. Time to look down south - Singapore.

Re your comment: 'My view on QSR or KFC is that there is upside from here on, but you have to hold for a couple of years to see substantive returns. I think investors in general are still not fully appreciative of its India link up.'
I thought Carlyle is buying out QSR and they will have to make a general offer for KFC?

One Shot

Fyzul Adzwan said...

ive been following your blogs for quite some time now. could you do an rss for easier following? appreciate much.

btw, whats your take on the recent m&a? and us economy in 2011 ie bear/bull?

bill said...

why does the following deals:
do not price close to the offer price, unlike the UEMLAND/SUNRISE deal ?
opportunities ?
mispricing ?
something fishy ?

solomon said...

Non binding TO means if certain conditions by the acquirer are not met, then the take over will lapse.

Mispricing - share swap and too long to complete the deal means uncertainty, 10-20% discount to this deal, if not a cash GO.

On the Carlyle deal on QSR, why into Malaysia franchise and not direct participation to YUM Brand US? Or this is a mandated buy by client who does not want their names to be revealed? Dali, what is your thought leh?

bonny b said...

I think u know who is behind Carlyle. Mind to share with us??

offstonee said...

This offer is not abt who is behind, it is US DOLLAR depreciating after QE2,and then causing huge liquidity into emerging markets and of course Malaysia. They try to buy with their printed dollars before it is depreciates further and b4 QE3, QE4.. etc.

Be careful what you wish for, this people will come and exit like lightning.

solomon said...

Bonny b,

I admires some of your comment in the blogs. A simple and yet pleasant guy (based on your comments)

To be honest, I dont know who is behind the QSR deal. But my dad always remind me of this idiom "Masuk kampung tanya adat or penghulu"...

By the way, do you listen to Orchestra music? Maybe Leslie or someone can explain the difference of a C Major and C Minor. I am hearing a C Minor now....

bonny b said...

Dear Solomon,
My curiosity about who is behind this QSR offer is simply motivated by rumours that Malaysians are hiding behind Carlyle. So I thought perhaps u may have heard something worth sharing.
Also, in any M&A involving a PLC, I am of the opinion that making a 'non-binding' offer can be misleading to the public in its uncertain nature, and as such, highly unethical.
BTW, I do not understand your 'adat kampung' advice. Please pardon my ignorance. Will appreciate some clarity. Best wishes.

solomon said...

Based on yr first and subsequent Q&A, you have certain good understanding of corporate world.

Maybe, I should humble myself to ask you on the suggested Malaysian in the deal? I am just a normal guy at time perhaps on different focus now - to make sure next generation more hardy and multiply more good seeds...

Thank you in advance Bonny and Dali.

Marco said...

I suppose this is just another trick that speculate the share price, and a few parties will be able to make quick bulk out of it.

bonny b said...

U r spot on. Perhaps the SC may have something to say about these shenanigans going on. It runs contrary to efforts to promote Bursa as a safe place to invest doesn't it??

Marco said...

Hi Bonny, only fundamental strength will be able to make KLSE an investment heaven. Speculations and short measures that have been done by BURSA will just invites 'hot money', ended up bubble in local share market.