Highlight Etika’s Tan brothers score big

by **Cals** Fri 11 Apr 2014, 09:16

Highlight Etika’s Tan brothers score big

Business & Markets 2014

Written by Tang Wei Lynn & Siow Chen Ming of theedgemalaysia.com

Friday, 11 April 2014 08:18

KUALA LUMPUR: Etika International Holdings Ltd, which is controlled by the Tan brothers formerly of the Pengkalen Holdings Bhd fame, is selling its dairies and packaging business to Japan’s beverage giant Asahi for a whopping RM1.06 billion in cash.

In a filing with the Singapore Exchange (SGX) yesterday, Etika announced that it has entered into a conditional share purchase agreement with Asahi’s regional unit, Asahi Group Holdings Southeast Asia Pte Ltd, to sell the related business as well as the relevant intellectual property (IP) for an aggregated consideration of US$328.79 million (RM1.06 billion), on the basis of cash and debt free enterprise value.

The deal is valued at 2.5 times the net asset value of the said business and the relevant IP, and is 24.84 times the business’ audited net profit before tax and minority interests of RM42.67 million for the financial year ended Sept 30, 2013 (FY13).

The total purchase value is higher than Asahi’s purchase of Pemanis Sdn Bhd, the local bottler of Pepsi, from CI Holdings Bhd for RM820 million in 2011.

According to Etika, which is listed on the SGX, the sale of the dairies and packaging business will result in an estimated gain of RM625.9 million, which would be a handsome windfall for its shareholders, particularly the Tan brothers — Datuk Jaya J B Tan and Datuk Kamal Y P Tan who collectively own 30% of Etika.

Jaya is chairman while Kamal is the group chief executive officer of Etika.

[You must be registered and logged in to see this image.]

Kamal Tan (pic) and his brother Jaya, who used to control stockbroking group Pengkalen Holdings in the 1990s, collectively own 30% of Etika.

The deal with Asahi is a big score for the Tan brothers, who made their name in stockbroking group Pengkalen in the 1990s but were fortunate to have exited the stock market-related business just before the 1997-1998 Asian financial crisis.

Coming from a wealthy timber family in Sabah, the three brothers (including Tajuddin JH Tan who passed away in 2005) gained control of Pengkalen in 1987. Pengkalen, which was then involved in a myriad of businesses including food products and building materials, had two stockbroking outfits — Kimara Equities and Pengkalen Securities.

It was reported that among the parties that showed interest in Pengkalen’s stockbroking business then were Tan Sri Syed Mokhtar Al-Bukhary, some foreign groups and Tan Sri Khoo Kay Peng’s MUI Group Bhd. MUI, in particular, was said to have been bullish about the potential of the stockbroking business after Khoo sold his MUI Bank in 1994 to the Hong Leong Group.

To gain control of Pengkalen, MUI accumulated the former’s shares on the open market and subsequently launched a takeover of the group in 1996. MUI won the battle for Pengkalen but paid a hefty price, reportedly a few hundred million ringgit for the takeover, only to see the stockbroking industry go into a tailspin a year later.

The Tan brothers took the proceeds from the sale of Pengkalen to establish Etika with several ex-Fraser & Neave Holdings Bhd (F&N) executives, namely Mah Weng Choong, Khor Sin Kok and Ronnie Kwong — all remain shareholders of Etika till today.

Up against the giants like F&N and Nestle (Malaysia) Bhd, they have turned Etika into one of the world’s largest manufacturers of sweetened condensed milk, with exports to the Asean and African regions. However, given the thin margin and the competitive nature of this business, Etika’s profits remain modest. The company was rarely on investors’ radar until Asahi came knocking on its door.

In the announcement to SGX yesterday, Etika said the proposed disposal to Asahi provides a good opportunity for the group to unlock value in the business. It said it is also considering possible options to distribute part of the disposal proceeds to its shareholders, adding that it will update them on this in due course.

“The proceeds will go towards payment of bank borrowings, thus strengthening the financial position of the group, to finance the growth of the remaining businesses and to capitalise on other business opportunities to enhance the long-term value for shareholders,” said Etika, which also manufactures instant noodles in Indonesia.

For FY13, the dairies division contributed 67% to Etika’s group revenue of RM982 million, and generated most of the group’s net profit of RM7.4 million, while other divisions including nutrition and “others” made losses.

The group acknowledged in its FY13 annual report that market competition is intense for the dairies business, particularly in the overseas market (outside of Malaysia), which accounted for 39% of overall group revenue. The division reported lower revenue and profit after tax for FY13. The packaging business, which falls under the “others” division, only accounted for 4.6% of group revenue for FY13.

In the SGX announcement, it is stated that Jaya and Kamal, along with Mah, Khor, Kwong Yuen Seng, Tee Yih Jia Food Manufacturing Pte Ltd and Pok York Keng, who collectively own 55.88% of Etika, have each given an undertaking to Asahi to vote in favour of the sale, which shall be proposed at an extraordinary general meeting to be convened.

This article first appeared in The Edge Financial Daily, on Aprill 11, 2014.