This article first appeared in The Edge Malaysia Weekly on August 1, 2022 - August 7, 2022

WILL it be third time’s the charm for Jardine Cycle & Carriage Ltd, which launched yet another unconditional takeover offer for Cycle & Carriage Bintang Bhd (CCB) on July 14?

Jardine’s bid to acquire the rest of the shares in CCB that it does not already own — at an offer price of RM2.70 per share — marks its third attempt at making CCB a fully owned subsidiary.

As with the first two exercises, the current offer is expected to fall short, because even though it is higher than the previous offers of RM2.20 per share followed by another at RM2.40, it is still far from the RM4.65 enterprise value (EV) that the main dissenting shareholder Datuk David Goh contends it is worth.

In an exclusive interview with The Edge in July last year, Goh said that the underlying value of CCB — one of the largest Mercedes-Benz dealerships in the country — was at least RM4.65 per share, based on its EV then. He also claimed that many of CCB’s assets had not been revalued.

However, according to The Edge’s calculations, the EV per share of CCB as at July 28 — based on total borrowings, cash and cash equivalents on June 30, 2022, and market capitalisation of RM270 million — is RM2.86.

This means that Jardine’s offer of RM2.70 per share is 0.94 times the EV per share of CCB.

The EV per share of CCB has declined since the first takeover offer was launched by Jardine in November 2019. At the time, the EV per share based on The Edge’s calculations was RM4.11, which meant that the offer of RM2.20 per share grossly undervalued the group.

Checks on the value of properties owned by CCB in its 2021 annual report show that several assets are carrying declining book values. This could be because many of the properties are leasehold.

For example, the Mercedes-Benz Autohaus in Batu Caves had a net book value (NBV) of RM5.58 million in 2021, compared with an NBV of RM7.14 million in 2019. The property was acquired in 1982 and is owned on a leasehold basis until 2074.

Only the Autohaus in Mutiara Damansara, Ipoh, Johor Baru, Bukit Mertajam and Georgetown are located on freehold land. In the case of the Johor Baru Autohaus, the carrying NBV in 2021 was RM19.1 million compared with RM8.69 million in 2019. The huge jump in NBV could be due to the major refurbishment that it underwent in 2021.

However, the Mutiara Damansara Autohaus posted a decline in NBV to RM24.8 million in 2021, from RM26.76 million in 2019, even though it is located on freehold land.

CCB also has a parcel of land for future use in Sungai Besi that carried an NBV of RM31.46 million in 2021. The NBV of this piece of land, which measures 45,639 sq ft, or slightly over an acre, also fell from RM33 million in 2019.

Should Goh and the small number of shareholders that collectively hold 2% of CCB’s issued shares — they have been difficult to trace — decline the latest offer, Jardine may have to contend with having CCB delisted from Bursa Malaysia but not have full control of the group.

Following the completion of the previous takeover offer for a cash consideration of RM2.40 per share, the public shareholding spread of CCB is around 10%, which means that it does not comply with the public spread requirement of 25% under the Main Market Listing Requirements of Bursa Malaysia.

CCB has sought several extensions from Bursa to comply with the public spread requirement, the latest being for a six-month period, from April 28, 2022 to Oct 27, 2022. It is uncertain as to how much longer Bursa will continue to grant such extensions to CCB.

Therefore, the delisting of CCB appears imminent and it is just a matter of how much control Jardine would have over the privatised company.

In a notice to shareholders regarding the takeover offer, Jardine says that a successful delisting of CCB will allow both parties to dispense with the compliance costs associated with maintaining CCB’s listing status.

“Such cost reduction measures are in line with the broader need to streamline and improve the operational efficiency of CCB, given the challenging economic and operating environment faced by CCB,” says Jardine in the takeover notice.

Having full ownership of CCB would make it easier for Jardine if CCB is delisted. But should Goh and other dissenting minority shareholders continue to hold on to their shares, Jardine would have to take their ownership into consideration in the running of the group. Streamlining Jardine’s direct motor operations would then be rather difficult.

CCB is not a very meaningful contributor to Jardine’s bottom line. In the financial year ended Dec 31, 2021 (FY2021), Jardine recorded US$786 million (RM3.5 billion) in underlying net profit, of which only US$39 million was contributed by the group’s direct motor interests.

Of the value contributed by direct motor interests, Cycle & Carriage Singapore contributed US$29 million, while PT Tunas Ridean TBK, an Indonesian used car dealer business, contributed US$16 million. CCB’s contribution was only US$1 million.

However, CCB’s network of 11 outlets throughout the West Coast of Peninsular Malaysia is an asset in itself for the Jardine group. In total, there are 31 Mercedes-Benz outlets in the country.

Even though CCB only accounts for a small portion of Jardine’s profit, the latter seems adamant about having full control of the group.

Will Goh relent and accept Jardine’s latest offer and make it third time lucky for Jardine?

Save by subscribing to us for your print and/or digital copy.

P/S: The Edge is also available on Apple's AppStore and Androids' Google Play.