BreadTalk to be delisted from SGX

Its major shareholders offered to buy all of its other shares for $0.77 apiece.

The major shareholders of bakery chain operator BreadTalk Group will increase its stake in the firm, allowing it to exit from the Singapore Exchange Securities Trading (SGX-ST) as it will fall under its 10% free-float requirement, a bourse filing revealed.

Founders George Quek Meng Tong and Katherine Lee Lih Leng and Minor International PCL, have launched a voluntary conditional cash offer to acquire all of its issued ordinary shares for $0.77 apiece. The offer price represents a premium of approximately 19.4%. and 30.1% over the closing price on 21 February and the one-month volume weighted average price, respectively.

In addition, each of Quek, Lee, Square Investment (an investment vehicle jointly owned by Quek and Lee) and Primacy Investment Limited (an indirect subsidiary of Minor International) has given an irrevocable undertaking to tender all the shares that they hold in acceptance of the offer and reinvest the consideration due to them to subscribe for new shares.

As of 24 February, they collectively own 397,143,308 shares, or about 70.53% of BreadTalk. The filing also mentioned that its businesses are struggling Hong Kong, China and Thailand.

“The offer represents an attractive cash exit opportunity for BreadTalk shareholders to realise their entire investment at a premium to the prevailing market prices, without incurring brokerage and other trading costs,” the offeror stated.

The offerors also noted that the move will better manage BreadTalk’s business, optimise the use of its management and resources, save on expenses and costs relating to the maintenance of a listed status and channel such resources to its business operations.

They also added that BreadTalk has not carried out any exercise to raise equity capital on the SGX-ST in the last 10 years.

“BreadTalk is unlikely to require access to Singapore equity capital markets to finance its operations in the foreseeable future as it has various other available funding sources such as bank borrowing facilities,” it stated.

“Shareholders would be better off accepting the offer as the valuation is attractive at 33x FY20F PE; we believe shareholders would find it difficult to hold out for a higher offer price and offer is higher than closing prices in the past eight months,” said Alfie Yeo, an analyst at DBS Group Research.

He also added that that the shareholding structure of BreadTalk is sporadic, with the second largest shareholder holding only a 4.99% stake based on shareholding structure listed on Bloomberg.

“As the second largest shareholder is way smaller, it is difficult for all the minority shareholders to collectively reject the S$0.77 offer to force the offeror to increase the offer price,” Yeo said.

At the offer price, BreadTalk’s market cap or equity valuation is at around $434m, which would cost about $130m to take out the remaining c.30% shareholders. Upon completing the deal, the offeror is will have 100% access to the balance sheet of $157.6m cash as of December 2019.

“Over the past five years, the business was able to generate operating cash of at least $65m annually. The owners will enjoy full benefit of this cash after privatisation,” Yeo explained. “We believe the deal makes sense for both the offeror and shareholders”.