Bonia Corp - Founder's Stake Build-up Triggers MGO

THE BUZZ

Yesterday, Bonia Corp received a notice of unconditional takeover offer from Freeway Team SB (FTSB), Chiang Sang Sem (CSS) and Chiang Fong Yee (CFY), together with persons acting in concert (PACs) with them, who now hold a combined 50.17% stake in Bonia. The offer price is RM2.04 per share.

OUR TAKE

A recap. Last Friday, CSS announced that he was in discussions with several parties in relation to the acquisition of certain stakes in Bonia to increase his stake in the company. At that time, Chiang and his family owned around 32.79% equity interest in Bonia. Yesterday, FTSB acquired another 17.38% of Bonia via direct business transactions for cash of RM2.04 per share. Note that CSS and CFY are substantial shareholders of FTSB. Currently, FTSB, CSS and CFY (the Joint Offerors), together with PACs, collectively hold 50.17% in the company following the acquisition.

Making offer of RM2.04 per share. Yesterday’s stake acquisition triggered a Mandatory General Offer (MGO) for the remaining shares in Bonia not owned by the Joint Offers and PACs. The Joint Offerors and PACs have proposed to acquire all the remaining 100.4m Bonia shares, or a 49.8% stake, for RM2.04 per share in cash. Assuming full acceptance by minority shareholders, the entire MGO will cost around RM204.8m.

Not an appealing price. As we had highlighted in our previous note, the MGO offer would have to be at least on par with the 9-10x (~RM2.60) commanded by recent retail M&A transactions to entice Bonia’s minority shareholders. The RM2.04 price tag translates into a PE of only 7x FY12, which is way below the industry benchmark and represents a hefty 22.1% discount to the share’s last closing price of RM2.58. Therefore, we expect minority shareholders to reject the unappetising offer.

Keeping Bonia’s listing status. We believe the MGO has been triggered by technical grounds to comply with Bursa’s requirements and is unlikely to achieve the delisting threshold of 75% given the low offer price. The Joint Offerors have also expressed their intention to maintain Bonia’s listing on the stock exchange.

Maintain BUY. The emergence of the Chiang family as the largest shareholder in Bonia (50.17% stake) is viewed positively as it will strengthen the family’s grip on the company and ward of any potential takeover bids by third parties. We believe the MGO is an option for the Chiang family to increase its shareholding in Bonia at a cheaper price. Maintain BUY, with our FV unchanged at RM3.15, based on 11x FY12 EPS.

Source: OSK