PETALING JAYA: Food packaging manufacturer SCGM Bhd entered into a conditional share sale agreement with Japan’s Mitsui and FP Corp (FPCO) today to dispose of its entire equity interest in Lee Soon Seng Plastic Industries (LSSPI) for RM544.38 million cash.
LSSPI is the sole subsidiary of SCGM and represents the entire core business of the group. Upon completion of the proposed disposal, SCGM will not have any core business, subsidiary or associate company. The proposed disposal entails Mitsui acquiring a 60% stake in LSSPI for RM326.63 million cash, and FPCO acquiring the remaining 40% for RM217.75 million cash.
Mitsui has a diversified business portfolio that spans 63 countries in Asia, Europe, North, Central and South America, with a core business portfolio covering mineral and metal resources, energy, machinery and infrastructure, and chemicals industries.
FPCO is principally involved in manufacturing and marketing of disposable food containers made of polystyrene and other compound resins as well as marketing of related packaging materials.
Upon completion of the disposal, SCGM intends to distribute part of the cash to all entitled SCGM shareholders through capital reduction and repayment exercises as well as a special dividend.
SCGM managing director Datuk Seri Lee Hock Chai said this is an opportunity for SCGM to unlock the value of its investment in LSSPI over the past 38 years. “At the same time, it allows shareholders to partially realise their investments in the company in cash, as SCGM intends to distribute part of the proceeds to all entitled shareholders.”
The disposal consideration represents an implied enterprise value EV/ebitda of 10.6 times, computed based on LSSPI’s RM55.48 million ebitda for FY21; and an implied price to earnings ratio of 16.03 times.
SCGM is expected to record a net gain of RM393.69 million for expenses of the proposed disposal.LSSPI has also entered into an agreement with SCGM to transfer three parcels of land with factory buildings and other ancillary buildings located at Mukim Senai, Kulai, Johor for RM18.8 million.
From the proceeds of RM544.38 million, RM425.56 million is earmarked for proposed distribution to SCGM shareholders within nine months, and RM18.8 million for the transfer of properties. About RM84 million is allocated for the acquisition of new businesses or assets to be identified or working capital within 24 months, and the remaining RM16 million is to defray estimated expenses for the exercise.
The distribution entails capital reduction and repayment of 36 sen per share and a special dividend of RM1.85 per share.
Upon completion of the SSA, the purchasers will pay shareholders cash in three tranches. The first tranche of RM490.38 million is to be paid to SCGM directly while the second tranche of RM53 million will be placed with an escrow agent in an interest-bearing account for 12 months.
The third portion of RM1 million will be placed in an interest-bearing account with a Malaysian bank for 36 months.
Both exercises are expected to be completed by the third quarter of 2022.