Makro deal 'well worth cost'

He said CP All had no need to increase capital to acquire Siam Makro shares as the deal would be mainly financed by loans from financial institutions. The company can capitalise on existing Siam Makro assets to launch a property fund.
The deal was revealed on Tuesday. Rejecting the belief of some that CP All spent too much to acquire Siam Makro, the tycoon said it was worth the price. What appears to be pricey today could be seen as a bargain in the future. He said Siam Makro was on a rapid growth path with continued increases in profit.
Dhanin said that what really mattered was not money but the high-calibre teams in the retail and wholesale businesses CP All and Siam Makro had respectively. The two enterprises also have different customer targets, so they will not compete with each other but will be able to create a strong synergy. CP All can also use the Siam Makro brand to expand the cash-and-carry wholesale business overseas. He said CP Group would continue seeking new deals if the investment opportunity lends itself to the group and the group has the capability to invest.
CP All is expected to show a 29-per-cent increase in annualised net profit next year thanks to its takeover of Siam Makro, according to Asia Plus Securities.
The house expects the deal to be completed in the third quarter and Siam Makro’s earnings to be consolidated into CP All’s balance sheets in the fourth quarter.
The takeover turns CP All into the third-largest retailer in Asia, with combined revenue of Bt313 billion.
Asia Plus Securities noted that CP All would gain from a higher bargaining power over suppliers and through regional expansion under the Makro brand. At present, its licence to operate 7-Eleven convenience stores is limited to certain areas.
Meanwhile, of the 56 Makro outlets, 53 sit on land owned by Siam Makro. These land plots, whose market value would be much higher than book value, could support the launch of property funds, it said.
Though the net gearing ratio will rise to 6 times, CP All’s debt should fall to 1 time within five years thanks to higher cash flow.
Asia Plus expects CP All’s sales and service revenue to rise from Bt188.7 billion last year to Bt251 million in 2013 and Bt385.6 billion in 2014. The net profits in the period will also rise from Bt11 billion in 2012 to Bt18 billion in 2014.
In another development, Adirek Sripratak, president and chief executive officer of Charoen Pokphand Foods (CPF) - one of CP Group's flagship businesses, said the company’s performance in the first quarter of this year was under the target despite declining meat prices.
The company expects the situation to improve in the second half, though there is still some problem with shrimp disease.
“We are still confident of achieving 10-per-cent growth in sales revenues for the full period of this year,” he said.
Adirek said the baht’s appreciation had affected CPF although the company had implemented risk-protection measures by fixing the exchange rate when setting prices. Still, he believes the baht is too strong.
He said CP All’s acquisition of Siam Makro would benefit CPF.