CP All, owner of the 7-Eleven convenience store franchise in Thailand, has offered to pay $6.6 billion for Siam Makro, one of the country’s leading cash-and-carry retailers. It will be the biggest M&A transaction worldwide in the retail sector so far this year, and the largest ever Thai domestic takeover.
The company, controlled by billionaire Dhanin Chearavanont’s Charoen Pokphand Group, has agreed to pay Bt787 ($27.3) a share to the main shareholder SHV Holdings for a 64.35% stake, valued at $4.24 billion, and offer the same price to minority shareholders within two months.
“The acquisition represents an in-market consolidation between two companies within the same sector,” according to a person familiar with the transaction. “It’s the sort of deal that, due to the cost and revenue synergies, investors understand.”
The offer is a 15% premium to Siam Makro’s share price before trading was suspended on Monday, and represents a multiple of more than 50 times earnings.
However, future earnings are expected to be higher, and Siam Makro also owns the sites of its stores. So, “it is important to look not only at future earnings, but also to consider the real estate inventory held by Siam Makro that isn’t included in conventional valuation multiple calculations”, said the person.
He argued that an adjusted price-earnings ratio would be between 30 and 35 times, including a takeover premium, which would be in line with the multiples of other regional retailers.
Chearavanont and the private Dutch trading conglomerate SHV, whose other interests include oil and gas production, have a long-established relationship, forged in the creation of Siam Makro in the late 1980s. After the Asian financial crisis a decade later, the Thai tycoon sold off assets including most of his stake in the discount retailer. His food and beverage firm, Thailand’s third biggest retailer, is now keen to expand into other parts of Indo-China.
Meanwhile, SHV has already divested its cash-and-carry businesses in China, Malaysia and Pakistan; its holdings in Thailand are its only significant similar assets, although it retains significant operations in Latin America.
“The rationale and basis of the transaction has several features,” said the person.
“There is a long-term historical relationship between CP and SHV; both firms have commanding markets shares in convenience stores and the cash-and-carry business respectively; the two businesses have clear synergies; and for CP Food the purchase makes sense as it looks to expand into other parts of Indo-China, while SHV seems to be withdrawing from its cash-and-carry retail activities in Asia,” he explained.
Siam Commercial Bank is advising CP All, UBS is the parent’s adviser and HSBC is advising Siam Makro.
Initially, about 90% of the funding for the purchase will come from a bridge loan, and the rest will come from CP All’s cash reserves. Payment for the SHV stake will be in US dollars. There are five lenders involved: HSBC, Siam Commercial, Standard Chartered, Sumitomo Mitsui and UBS.
The acquisition ticks several boxes. According to Dealogic, it is the largest Asia ex-Japan targeted M&A deal and biggest global M&A transaction in the retail sector so far this year. It is also the third-largest Asia-Pacific targeted M&A deal in the sector on record, the fourth-biggest Southeast Asia targeted M&A ever and the largest Thai-targeted M&A transaction.
The acquisition will bring the value of 2013 announced retail M&A worldwide to $25.6 billion, according to Thomson Reuters. That is up 87% from the same period last year. The value of M&A deals involving Thai companies totals $7.2 billion so far this year.
Earlier this year, Chearavanont’s CP group paid $9.4 billion for Chinese insurer Ping An.
