KUALA LUMPUR: Food packaging manufacturer SCGM Bhd has entered into a conditional share sale agreement (SSA) with Mitsui & Co Ltd and FP Corp (FPCO) to dispose of its 100% stake in Lee Soon Seng Plastic Industries (LSSPI) for RM544.38mil cash.
In a filing with Bursa Malaysia, SCGM said LSSPI is its sole subsidiary and represented the entire core business of the group.
Upon completion of the proposed disposal, SCGM said it will not have any core business, subsidiary or associated company.
“The proposed disposal entails Mitsui acquiring a 60% equity interest or 63.88 million LSSPI shares for a cash consideration of RM326.63mil and FPCO acquiring the remaining 40% equity interest or 42.59 million LSSPI shares for a cash consideration of RM217.75mil.
“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 and proposed special dividend.”
Both Mitsui and FPCO are listed on the Tokyo Stock Exchange.
SCGM products
In the same statement, SCGM managing director Datuk Seri Lee Hock Chai said the disposal represents an opportunity for the company 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-to-earnings before interest, taxes, depreciation and amortisation (Ebitda) ratio of about 10.60 times, computed based on RM55.48mil Ebitda for the financial year ended April 30, 2021 (FY21) of LSSPI.
It also has an implied price-to-earnings ratio of 16.03 times based on a net profit of about RM33.95mil for FY21.
SCGM is expected to record a net gain on disposal of about RM393.69mil (after accounting for estimated expenses for the proposed disposal).
Separately, SCGM said 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 RM18.80mil.
Of the proposed proceeds of RM544.38mil, RM425.56mil are earmarked for proposed distribution to entitled SCGM shareholders within nine months and RM18.80mil for transfer of properties immediately upon completion of the proposed disposal to the purchasers.
SCGM said RM84mil is allocated for acquisition of new business/assets to be identified or working capital within 24 months, while the balance RM16mil will be to defray estimated expenses for the exercise.
“For illustration purposes, the proposed distribution entails capital reduction and repayment of 36 sen per share and proposed special dividend of RM1.85 per share,” said SCGM.
Upon completion of the SSA, SCGM said the purchasers will pay the disposal consideration in cash in three tranches.
“The first tranche of RM490.38mil will be paid to SCGM directly, while the second tranche of RM53mil 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.”
Meanwhile, the third tranche of RM1mil 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 the total number of issued shares held by SCGM shareholders at an EGM to be convened and any other relevant authorities and/or parties if required,” said SCGM.
It added that the transfer of properties will not require approval from SCGM shareholders.
“Barring unforeseen circumstances, both exercises are expected to be completed by the third quarter of 2022,” it said.
SCGM shares last traded at RM2.38.