KUALA LUMPUR (Aug 24): Sime Darby Bhd is buying a 61.18% equity interest in UMW Holdings Bhd from its parent company Permodalan Nasional Bhd (PNB) for RM3.57 billion or RM5 per share.

UMW shares were last traded at RM4.62. The offer price of RM5 represents 8.2% premium.

The biggest automotive deal in the country will see Sime Darby launch a mandatory general offer (MGO) to buy the remaining shareholding of 38.82% and take UMW private. The MGO is expected to cost roughly RM2.27 billion, the group said in a filing to Bursa Malaysia.

The announcement confirms a report in The Edge Malaysia weekly's Aug 14-20, 2023, edition, which said PNB intends to consolidate its auto business by selling its stake in UMW, according to sources privy to the matter.

The deal, which values UMW at RM5.84 billion, will be funded by internal borrowings.

The total consideration also translates into an implied price to earnings ratio (PER) for UMW of 14.1 times and price to book ratio of 1.3 times.

This compared to Sime Darby's PER of 13 times as at Aug 23, while its peers like DRB-Hicom Bhd has a PER of 15.2 times, Bermaz Auto Bhd 8.5 times, and MBM Resources Bhd 5.1 times.

Subsequently, Sime Darby will double its net gearing ratio to 0.40 times from 0.20 times as at its financial year ended June 30, 2022 (FY2022).

Sime Darby also said it does not intend to maintain the listing status of UMW on the Main Market of Bursa Securities.

According to the filing, the deal will require shareholders approval through an extraordinary general meeting.

CIMB Investment Bank Bhd is the principal adviser, while AmInvestment Bank Bhd has been appointed as the independent adviser for the deal.

The acquisition is expected to be completed by the fourth quarter of this year, and the MGO by the first quarter of 2024.

Under the listing requirements of Bursa Malaysia, it is mandatory for new shareholders who acquire 33% or more to launch an MGO.

UMW’s notable shareholders are the Employees Provident Fund (EPF) at 7.62%, and Retirement Fund Inc (KWAP) at 9.13%.

Sime Darby to streamline UMW’s business via divestment of non-core assets

Upon the completion of the deal, Sime Darby intends to undertake a comprehensive review of various businesses within UMW Group to determine the strategic plans for the integration of UMW Group into Sime Darby Group.

“The key objectives of the integration plan are to ensure continuity of UMW Group’s businesses, formulate action plans to realise anticipated synergies, harmonisation of systems and policies as well as aligning organisational cultures,” the group said in the filing.

As part of the comprehensive review, Sime Darby also intends to identify strategic options to streamline UMW Group’s businesses through assets that would be required to be disposed of.

“In respect of the foregoing, Sime Darby wishes to highlight that the aforementioned divestments shall be explored at the appropriate time and subject to acceptable terms,” the group said.

According to The Edge Malaysia’s report, the reason for the corporate exercise is the valuation of Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which is not reflected anywhere because of its current shareholding structure.

“The objective is to list Perodua eventually. Its net tangible assets are about RM2 billion. The market capitalisation of both UMW and MBM Resources Bhd (a public-listed company that owns a stake in Perodua) does not reflect Perodua’s value,” a source said.

Perodua is a joint venture between Malaysian and Japanese entities, with no one party holding a controlling stake. Through wholly owned UMW Corp Sdn Bhd, UMW owns 38% of Perodua, while Daihatsu Motor Co and its Malaysian outfit own a 25% stake.

Propels Sime Darby as the largest automotive player in Asia Pacific

The automotive segment is UMW Group’s largest business, with its subsidiary the sole distributor of Toyota and Lexus car models in Malaysia while its associate, Perodua, in which UMW Group is the largest shareholder, is among Malaysia’s largest automotive manufacturer.

The exercise is expected to scale up Sime Darby Group’s operations in Malaysia, positioning Sime Darby as a leading automotive player with more than 50% market share in Malaysia.

The group will be able to leverage this stronger foothold in Malaysia to tap into increased market opportunities and customer base and to unlock potential for revenue growth and operational efficiencies.

The deal is also expected to accord Sime Darby full presence across the automotive spectrum by adding high-volume mass market brands (Toyota and Perodua) to complement its existing premium to luxury portfolio (BMW, Rolls-Royce, Jaguar, Land Rover and Porsche).

“With increased contribution from Malaysia, the revenue mix of Sime Darby Group’s automotive business will be further diversified geographically with more balanced revenue contributions from Malaysia, along with China and Australia, which are currently the key markets of Sime Darby Group,” the group said in the filing.

The deal may also yield additional benefits to Sime Darby by adding manufacturing and distribution capabilities to complement its existing assembly and retail businesses.

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