CVC, Johor win board backing for Malaysian fast-food buyout
A takeover offer from CVC Capital Partners and Malaysian state investment arm Johor Corp. for fast-food chains QSR Brands and KFC Holdings has won approval from the companies’ respective boards. The consortium must now put their bid before shareholders, requiring 75% backing to proceed with the MYR5.24 billion ($1.65 billion) transaction.
QSR Brands and KFC Holdings announced their support for the bid in filings with Bursa Malaysia. The proceeds of the deal would be returns to shareholders through a capital repayment exercise.
CVC and Johor Corp. submitted a proposal on December 14 to privatize QSR and KFC, paying MYR6.80 per share and MYR4 per share, respectively. This represents a 20% premium to QSR's average price in the three months up to December 13 and an 18% premium on KFC's average price over the same period. The QSR bid is also higher than the MYR6.70 offer made by The Carlyle Group a year ago, which was rejected.
QSR controls more than 620 KFC restaurants in Malaysia, Singapore, Brunei, Cambodia and India; 270 Pizza Hut restaurants in Malaysia and Singapore; and more than 40 RasaMas restaurants in Malaysia and Brunei.
CVC and Johor Corp's investment would be made through a special purpose vehicle known as Massive Equity Sdn Bhd. Ownership of the vehicle is structured so that the London-headquartered private equity firm would end up controlling 49% of each target company.
Johor Corp. is the largest shareholder in palm oil producer Kulim Malaysia, which owns 57.5% of QSR. QSR owns 50.6% of KFC. Other major shareholders in the company include Employees Provident Fund and Lembaga Tabung Haji.
Johor Corp. used its influence to reject a takeover offer from local tycoon Halim Saad last year. Carlyle then entered the fray with a bid of its own, before Saad returned - this time in partnership with CVC and local investment holding company KUB Malaysia - with an even higher offer. Nothing materialized.
QSR and KFC are lucrative assets with strong regional growth prospects, but the ownership structure, combined with local business and political networks in Malaysia, complicate any acquisition process. It is therefore unsurprising that the successful bid sees Johor Corp., a state-run entity, consolidate its controlling position and simplify the ownership structure.
At the same time, it was reported last year that QSR became a buyout target in part because Johor Corp. was under pressure to service debts of MYR3.2 billion that are due to mature in 2012.
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