ACB worth for Parkson Deal

On September, LionDiv has announced a news on structuring plan for ACB, LionCorp and Parkson. Parkson will be injected into ACB and listed in Malaysia too.

A. Restructuring Steps
1. LionDiv values its 55.5% stake in Parkson Retail Group (PRG) and Parkson Malaysia operations (collectively known as Parkson operations) at RM4.3 billions.( Based on the average 5 tradings days of HK29).

2. ACB issues 3.8 billion new shares at RM1.00 par value each.

3. ACB issues RM500 million worth of redeemable convertible secured loan stocks (RCSLS). So,3.8billions new shares + 0.5billions RCSL = 4.3billions.

4. LionDiv injects the Parkson operations into ACB in return for the 3.8 billion ACB shares and RM500 million RCSLS.

5. LionDiv buys another 42.32 million ACB shares from LionCorp. (Total ACB shares is 74.71 millions)

6. LionDiv ends up with 3.84 billion ACB shares (99.16% stake) ( The remaining 0.84% is 32.39millions)

7. ACB undertake capital reduction (merger of 4 ACB shares into 1 new ACB share)

8. LionDiv now holds 960.51 million new ACB shares which still represents 99.16% stake in ACB

9. LionDiv distribute all 960.51 million ACB shares to LionDiv shareholders on the basis of 1.3 ACB shares for 1 LionDiv share held. (Through this, lionDiv will benefit by having lionDiv and ACB share together.)

Here i will not talk about LionDiv value should worth after the restructuring successful but on ACB.

Here is the calculation for ACB (Assumption for the plan is approved):
Total number of share for ACB = 968.5millions.While Parkson is value at 4.3Billions,The Parkson stake that can be attributed to shareholder equity (upon transfer to ACB) is RM3.8Billion ( RM4.3B – RM 500 million loan stocks).

Since ACB is actually a holding company for PRG, a 20% holding company discount will be applied to the stake. so, each share worth = ( 3.8b* 0.8 )/ 968.5m = RM3.14.
Upon completion of the restructuring the 1000 shares will become only 250 shares (capital reduction from par RM1.00 to RM0.25 and 4 shares combined to become 1).
So, RM3.14/4 = RM0,785

Current Value of ACB share = RM1.38( Current KLSE price)

Comparing both, which market in klse is trading for RM1.38 for a share RM0.785(After proposal), can we say that it is very highly overvalue?

No! We forgot that the share price is HK29 when it is proposed, on last Friday(30/3/2007), it is trading at HK51, which is already 75.9% higher,where we must consider this factor in. So, each share before consolidated worth = (3.8b * 1.759 * 0.8) / 968.5m = RM5.52. Thus, 5.25/4 = RM 1.3125, which is quite close to KLSE price RM1.38(Which is a bit higher).

Assuming better case, if we take 10% discount for holding company status, each share worth = (3.8b * 1.759 * 0.9) / 968.5m = RM6.211. after restructuring, 6.211/4= 1.552.The upside for ACB is 1.552/1.38 which is 12.5% upside.

Since there are many uncertainties on the proposal (Might be get rejected), and ACB is trading overvalue, i think its a SELL in a right price. (Target price RM1.55)