This article first appeared in The Edge Financial Daily on May 3, 2019
KUALA LUMPUR: YTL Corp Bhd’s 98%-owned unit YTL Cement Bhd is paying a hefty premium to buy a 51% stake in loss-making Lafarge Malaysia Bhd for RM1.63 billion cash, or RM3.75 per share, from Associated International Cement Ltd.
Consequently, YTL Cement is making a mandatory general offer to acquire the remaining shares in Lafarge Malaysia that it does not own, according to YTL Corp’s filing with Bursa Malaysia.
The mandatory takeover offer is at a premium of about 19% to Lafarge’s five-day volume weighted average share price of RM3.15. Furthermore, the transaction price is at a 25% premium over Lafarge’s net tangible assets of RM2.99 per share as at end-2018.
YTL Cement intends to maintain Lafarge’s listing status on the Main Market of Bursa Malaysia unless it receives valid acceptances resulting in the company and its associates holding in aggregate 90% or more in Lafarge.
The major acquisition is perceived as a way for YTL Cement to expand its capacity substantially, making it the country’s leading cement product maker.
The fact that YTL Cement, which was taken private by YTL Corp in 2012, intends to maintain Lafarge’s listing status has prompted some quarters to wonder whether YTL Cement would eventually inject its cement operation into the listed entity.
Interestingly, Lafarge’s share price has doubled from to at least a 10-year low of RM1.80 in February to RM3.30 on Wednesday before the announcement. The stock soared as much as 42 sen or 12.7% yesterday to close at RM3.72 — the highest level year to date.
The strong rebound on the share price was speculated to be fuelled by expectation that Lafarge will have a lion’s share in cement supply from the recently revived East Coast Rail Link.
YTL Cement managing director Datuk Seri Michael Yeoh Sock Siong said the acquisition represents an opportunity for YTL Cement to bolster its position as a leading, home-grown, Malaysian-owned cement company, enhancing its ability to offer customers the full range of cement products, maximise economies of scale to improve cost efficiencies and further develop its research and development (R&D) capabilities to innovate and expand the group’s range of cementitious product offerings.
“Lafarge Malaysia is a strategic fit to YTL Cement group’s business and we fully expect that the successful integration of our operations will strengthen our ability to fulfil the group’s regional growth aspirations, drive the expansion of our export markets and continue to develop our intellectual capital and R&D capability,” said Yeoh.
A local fund manager said that the move by YTL Cement is an indication that the latter is confident of the prospects of the cement industry.
“It shows they are confident about getting enough business. I’m sure they have done calculations when assessing the acquisition,” the manager said.
MIDF head of research Mohd Redza Abdul Rahman believes yesterday’s closing price would have priced in the news, though he does not think it would make the stock worth buying subsequently. Focus would be on how it will perform moving forward, he said.
“Looking at Lafarge Malaysia’s financial results, it has been loss-making for the past two financial years and it would be a great opportunity to exit. We do not expect Lafarge Malaysia to be profitable this year.
“But the YTL group has lots of cash for such an acquisition and has been shrewd in making major acquisitions such as their acquisition of Wessex water and also most recently Power Seraya,” said Redza.
Redza commented that it is likely that YTL Cement already has a plan mapped out to realise the value of Lafarge’s cement plants in Kanthan, Rawang and Langkawi. He said the acquisition may help to garner the export market.