Bloomberg News

CVC, Johor Make $1.6 Billion Offer for Malaysia’s KFC, QSR

December 15, 2011

(Updates with closing share prices in sixth paragraph.)

Dec. 15 (Bloomberg) -- CVC Capital Partners Ltd. teamed up with Johor Corp. to bid at least $1.6 billion for KFC Holdings (Malaysia) Bhd. and parent QSR Brands Bhd., to gain control of more than 900 fast-food outlets including KFC and Pizza Hut in Southeast Asia and India.

The offer values KFC Malaysia’s assets and liabilities at 4 ringgit per share, 17 percent more than its last traded price before the shares were halted yesterday. CVC and Johor bid 6.80 ringgit per share for QSR, 13 percent more than its last traded price before suspension, according to exchange filings late yesterday by the restaurant operators.

“For CVC, this is a chance to be in a fast-growing consumer market,” said Pankaj Kumar, who oversees $560 million as chief investment officer of Kurnia Insurans Malaysia Bhd. in Petaling Jaya, near Kuala Lumpur. “For Johor Corp., it’s an opportunity to take private two strong cash-flow companies.”

KFC Malaysia operates more than 620 fried-chicken outlets in Malaysia, Singapore, Brunei, Cambodia and India, according to its website. The company also has 29 RasaMas restaurants and 55 chicken stores, as well as farming and food manufacturing operations, it said. QSR operates about 260 Pizza Hut restaurants in Malaysia and Singapore, according to its website.

Kulim Malaysia

Johor Corp. is the biggest shareholder of palm-oil producer Kulim Malaysia Bhd., which already owns 54 percent of QSR, according to data compiled by Bloomberg. The state investment company issued a statement last year saying it had no plans to sell stakes in the food companies after Kulim rejected two 6.70 ringgit-per-share takeover bids for QSR, including one from Washington-based Carlyle Group.

KFC surged 11.4 percent to close at 3.80 ringgit in Kuala Lumpur trading today, its biggest gain since November 2007. QSR advanced 7.3 percent to 6.44 ringgit, its largest gain since November 2010, while Kulim rose 7.6 percent to 3.97 ringgit.

The transactions would cost more than 5.24 billion ringgit ($1.6 billion) excluding warrants, according to Bloomberg News calculations.

Buyout firm CVC owns 49 percent of the takeover vehicle and Johor Corp. holds the rest, yesterday’s exchange filings show. They bid 1 ringgit for each outstanding KFC warrant, and 3.79 ringgit for those of QSR, the statements said.

‘Decent Offer’

“Given the current outlook and volatility of the equity markets, both the KFC and QSR offer prices are considered attractive,” Johor Corp. said in a separate e-mailed statement late yesterday.

Their offer equates to a price-earnings ratio of 20 times for KFC and 17 times for QSR based on 2010 profits, according to Bloomberg News calculations. That compares with the average earnings multiple of 21 times for nine similar restaurants chains including Jollibee Foods Corp. and Papa John’s International Inc., Bloomberg data show.

“The valuations are about in line with consumer peers,” Malayan Banking Bhd. analyst Kang Chun Ee wrote in a report today, upgrading KFC’s price target to the 4 ringgit offer price from 3.12 ringgit. “This is a decent offer.”

KFC Malaysia and QSR’s boards “will appoint relevant advisers and deliberate on the terms of the offer and decide on the next course of action,” the companies said in separate statements.

Yum! Brands Inc., based in Louisville, Kentucky, owns the KFC and Pizza Hut brands.

--With assistance from Elffie Chew in Kuala Lumpur. Editor: Frank Longid, Terje Langeland

To contact the reporter on this story: Barry Porter in Kuala Lumpur at bporter10@bloomberg.net

To contact the editors responsible for this story: Frank Longid at flongid@bloomberg.net; Stephanie Wong at swong139@bloomberg.net


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