Food packaging manufacturer SCGM Bhd has entered into a conditional share sale agreement with Mitsui and FPCO to dispose of a 100% equity interest or 106,466,256 shares held in Lee Soon Seng Plastic Industries (LSSPI) for a total cash consideration of RM544.38 million.
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 associated company.
The proposed disposal entails Mitsui & Co acquiring a 60% equity interest or 63,879,754 LSSPI Shares for a cash consideration of RM326.63 million, and FP Corporation (FPCO) acquiring the remaining 40% equity interest or 42,586,502 LSSPI Shares for a cash consideration of RM217.75 million.
Mitsui is a global trading and investment company listed on the Tokyo Stock Exchange of Japan. It has a diversified business portfolio that spans approximately 63 countries in Asia, Europe, North, Central & South America, with a core business portfolio covering Mineral and Metal Resources, Energy, Machinery and Infrastructure, and Chemicals industries.
FPCO was incorporated in Japan on 24 July 1962 as Fukuyama Pearl Paper Manufacturing Corporation and subsequently changed its name to FP Corporation on 1 January 1989. FPCO, listed on the Tokyo Stock Exchange of Japan, 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 proposed disposal of LSSPI to the purchasers, the Board of SCGM proposes to distribute part of the Disposal Consideration to all entitled shareholders of SCGM, through a proposed capital reduction and repayment exercise, as well as a proposed special dividend.
Dato’ Sri Lee Hock Chai Managing Director, SCGM Bhd said: “This is an opportunity for SCGM to unlock the value of our 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 approximately 10.60 times, computed based on RM55.48 million EBITDA for FYE 30 April 2021 (FYE2021) of LSSPI; and an implied price to earnings ratio of 16.03 times based on FYE2021 profit after tax of approximately RM33.95 million.
SCGM is expected to record a net gain of disposal of approximately RM393.69 million (after accounting for estimated expenses for the proposed disposal).
LSSPI also entered into a conditional sale and purchase agreement with SCGM for the transfer of three contiguous parcels of land with factory buildings and other ancillary buildings located at Mukim Senai, Kulai, Johor for a total cash consideration of RM18.80 million.
Of the proposed proceeds of RM544.38 million, RM425.56 million are earmarked for proposed distribution to entitled SCGM shareholders within nine months, and RM18.80 million for Transfer of properties immediately upon completion of the proposed disposal to the purchasers. RM84.00 million is allocated for acquisition of new business/assets to be identified or working capital within 24 months, and the balance RM16.00 million to defray estimated expenses for the exercise.
For illustration purposes, the proposed distribution entails capital reduction and repayment of RM0.36 per share, and proposed special dividend of RM1.85 per share.
Upon completion of the SSA, the purchasers will pay the disposal consideration in cash in three tranches. The first tranche of RM490.38 million will be paid to SCGM directly, while the second tranche of RM53.00 million will be placed with an escrow agent in an interest bearing account for the purpose of paying, satisfying or discharging liability of the Company for a period of 12 months from the completion.
Also, the third tranche of RM1.00 million will be placed in an interest bearing account with a licensed bank in Malaysia to be held or operated jointly by the Purchasers and the Vendor for the purpose of paying, satisfying or discharging liability of the Company for a period of 36 months from the completion.
The proposed disposal of LSSPI is subject to approvals by at least 75% of total number of issued shares held by SCGM shareholders at an extraordinary general meeting to be convened, and any other relevant authorities and/or parties if required. The transfer of properties does not require approval by SCGM shareholders.
Barring unforeseen circumstances, both exercises are expected to be completed by the third quarter of 2022.
