This article first appeared in The Edge Financial Daily on June 21, 2019

KUALA LUMPUR: Paramount Corp Bhd wants to divest controlling stake of its K-12 education business to Two Horses Capital Sdn Bhd (THC) for an indicative price of RM540.5 million cash.

With the cash in hand, the group plans to distribute RM177 million, or 40.8 sen per share, to its shareholders in the form of special dividend. On the other hand, Paramount will have a bigger war chest to expand its land bank for property developments and to trim borrowings.

Paramount reported to Bursa Malaysia that it is selling majority stakes in Paramount Education Sdn Bhd (PESB), Paramount Education (Klang) Sdn Bhd (PEKSB) and Sri KDU Sdn Bhd (Sri KDU) to THC.

The deal is valuing the group’s K-12 education business at an enterprise value of RM861 million. Paramount’s market capitalisation was at RM945 million based on yesterday’s closing of RM2.18. The stock leapt to a high of RM2.30 shortly after it resumed trading following the announcement. It climbed 10 sen, or 4.8%, with four million shares changing hands yesterday.

The asset sale is expected to result in a pro forma gain of RM487.81 million — improving earnings per share by RM1.10. The group will distribute RM177 million as dividend to shareholders within six months from the completion of the agreement.

Meanwhile, the group will allocate RM150 million to acquire new property for its land bank; and RM133.65 million will be used to pare down borrowings within six months of the agreement. As at March 31, Paramount’s total borrowings stood at RM1.1 billion.

Paramount’s K-12 education businesses are composed of the Sri KDU and REAL national and international schools, REAL Kids pre-schools, and Cambridge English for Life (CEFL) enrichment centres.

In a separate statement, Paramount group chief executive officer Jeffrey Chew said the move allows the group to unlock the value of its education business, and the cash raised from the sale will be used as working capital, to grow its property development business’ land bank and be distributed to shareholders in the form of dividends.

Chew noted that Paramount will still maintain a minority stake with board representation in the Sri KDU Schools and the REAL Education Group.

In addition, the move will also see Paramount’s property development and education business as standalone businesses, allowing the group to grow its property development division.

He added that the group’s aim has always been to strengthen its businesses locally with regional expansion in sight.

“To do so, we believe the most efficient way is to work with a strategic partner with the experience, network and financial capacity,” said Chew.

The sale is subject to approval from the education ministry and the shareholders.

Rothschild & Co is the sole financial adviser to the Paramount’s board for the sale, with RHB Investment Bank Bhd as the sole principal adviser.

Credit Suisse is a buy-side adviser and Malayan Banking Bhd is the co-adviser to TPG Capital Asia, which is the Asian arm for global alternative asset firm TPG.

TPG Capital will provide financing to THC, as well as strategic and operational support.