Dairy Farm to buy 18.25% stake in top Philippine retailer for $681.93m

This will add over 1,700 stores under the company’s ownership.

Dairy Farm (DFI) plans to acquire an 18.25% stake in Robinsons Retail Holdings Inc (RRHI) in a deal worth a cumulative $681.93m (US$520m). According to CIMB, the transaction will be done via a share-swap of DFI’s 100% stake in Rustans Supercenters (RSCI) for a 12.15% stake in RRHI (worth US$346m) and an additional $228.2m (US$174m) for the remaining 6.1% of RRHI.

CIMB analyst Cezanne See noted that the deal is still subject to the approvals of the Philippines Competition Commission and the shareholders of RRHI, where a majority has already undertaken to vote in favour. “When finalised, DFI will have the right to nominate two directors to the Board of RRHI,” she added.

RSCI operates 12 hypermarkets and 61 supermarkets, whilst RRHI operates 1,718 retail stores including 154 supermarkets. DFI said the combined group will be one of the top three retailers in the Philippines with over 1,700 stores post completion of the deal. “Funding-wise, DFI could be able to stomach the US$174m given its net gearing currently stands at 0.3x,” See said.

RRHI is listed on the Philippines stock exchange and has a market cap of $2.98b (PHP119b) as at 23 March. “The Gokongwei family, one of the controlling shareholders, will continue to hold a 51% interest in RRHI post the completion of the deal. According to our Philippines research team, the Gokongwei family has interests in the telecommunications, petrochemicals, food, power generation, aviation and financial services industries,” See added.

See is positive that the deal could add scale for DFI’s Philippines business, given RRHI’s size. “The 18.25% stake could translate to c.US$20m-22m to DFI’s associate income (CY17: US$144m) but the additional associate income accounts for only c.3-4% of DFI’s estimated CY2018-2020F PBT of US$599m-US$657m,” she added.

Dairy Farm is scouting for growth areas following the appointment of new CEO Ian McLeod in H2 2017. DBS Equity Research previously noted that McLeod has already closed several underperforming lossmaking Supermarket and Hypermarket stores mainly in Malaysia, Singapore and Indonesia, whose performance he believes will not improve.