Berli Jucker
BIGC takeover bid goes to shareholders
Berli Jucker Plc (BJC)
What’s new?
BJC’s Board of Directors have called a shareholders meeting for 21 March to consider and approve the acquisition of BIGC shares (58.6% stake from Casino Guichard-Perrachon SA (Casino) and the remainder from a tender offer) at the price of Bt252.88 (including the FY15 dividend).
Cash call under way
The acquisition of BIGC will trigger BJC to make a cash call, otherwise its balance sheet will be distressed. The portion that BJC will buy from Casino is expected to push up BJC’s net D/E to 3x and net D/E would increase even further to 9.8x if all minority shareholders accept the tender offer. We have run a scenario analysis to assess the dilution effect and the potential impact on EPS from changes in net D/E target at YE16, cash call price and percentage holding in BIGC.
Note that our scenarios are based on the following assumptions:
1. A bridging loan rate of 3.5%, including fees and hedging costs.
2. An Interest rate of 3.25% for a long-term loan used to refinance the bridging loans.
3. Transaction for the 58.6% stake in BIGC takes place on 31 Mar.
4. A tender offer takes place on 31 May.
5. A cash call takes place on 30 Sep.
Good to acquire
Financially, the acquisition of BIGC should increase BJC’s value as BIGC’s earnings yield is higher than BJC’s funding costs, including the cash call. Based on our scenario analysis, FY17 EPS will be enhanced by 1.5% to 47%, depending which scenario plays out.
Operationally, BJC should benefit from having BIGC as its subsidiary. BIGC should find it easier to distribute its products through BIGC stores and should enjoy being a key OEM manufacturer for BIGC’s house brands. The most important factor in our view is that BJC will better understand market data, customer behavior and demand preferences, which will lead to better product developments and higher competitiveness.
Upgrade to BUY
The recent fall in share price has widened the upside to our YE16 target price to 10%, which we think is attractive as our model has yet to factor in the acquisition of BIGC, so there should be some further upside. We upgrade our rating on BJC to BUY with a YE16 target price of Bt36.50.
