- Kulim Bhd announced that it has received the formal offer document for shares in New Britain Palm Oil Ltd (NBPOL) from Sime Darby Bhd. In the absence of a superior offer, the Board of Directors of Kulim Bhd have agreed to present the proposed disposal of NBPOL to the shareholders of Kulim at an extraordinary general meeting (EGM).

- Kulim also announced that it would be distributing RM1bil out of the disposal proceeds of RM2.75bil as dividends. However, the dividends of RM0.78/share would be staggered over two years. There were no details on how the dividends would be staggered.

- About RM850mil of the disposal proceeds will be used for investments and capital expenditure. Part of the RM850mil will be used to finance the group’s plantation and oil and gas ventures in Indonesia.

- Another RM600mil of the disposal proceeds will be used to repay bank borrowings. According to the Bursa Announcement, the repayment of borrowings is expected to generate interest savings of RM25.5mil per year. Gross gearing is estimated to decline from 0.4x to 0.2x.

- Separately, the independent directors of NBPOL have recommended NBPOL’s shareholders to accept Sime Darby’s cash offer in the absence of a superior proposal. In their view, Sime’s offer is fair and reasonable. Sime’s cash offer of GBP7.15/share is within the independent adviser’s fair market value range of GBP7.00/share to GBP7.50/share.

- Sime’s offer will remain open until 18 December 2014. Payment of the offer consideration is expected to be made on 24 December 2014.

- As Kulim would only be receiving its proceeds from the disposal of NBPOL at the end of the year, we reckon that the additional or special dividends would only be paid next year. Kulim is expected to record a gain of RM1.56bil from the disposal of NBPOL. Kulim’s cost of investment in NBPOL was RM216.4mil.

- Maintain BUY on Kulim for the payment of the special dividends. However in the longerterm, we estimate that Kulim’s earnings would decline by almost 40% due to the loss of earnings from NBPOL.

Source: AmeSecurities