This article first appeared in The Edge Malaysia Weekly on December 26, 2022 - January 1, 2023

IT was a deal that was mutually beneficial to both companies. The founding members of confectionery maker Cocoaland Holdings Bhd had made no secret of their desire to dispose of the family-owned business, while Fraser & Neave Holdings Bhd (F&NHB) was keen to enter and participate in the local confectionery and snack market.

At the time, Cocoaland’s single largest shareholder was Leverage Success Sdn Bhd, which held a 40.65% stake. It was the private investment vehicle of the Liew/Lau (same Chinese surname) family, comprising Cocoaland’s then executive directors Lau Kee Von, Lau Pak Lam, Lau Kim Chew and Liew Fook Meng, and their siblings Liew Yoon Kee, Lau Kwai Choon and Lew Foo Chay @ Lau Foo Chay.

The Edge reported in 2021 that, unlike most traditional Chinese businessmen in Asia, Fook Meng, who was calling the shots at Cocoaland, had shared that he was against passing on the family business to the next generation as he felt it would limit their potential. He would rather see them find their own way and perhaps even go on to bigger things.

Indeed, Cocoaland had no shortage of suitors. In 2015, the company reportedly attracted interest from Swedish private equity group EQT Partners, Navis Asia V11 Management Co Ltd and Hong Kong-listed First Pacific Co Ltd. And as recent as January this year, The Edge reported that a European private equity firm and an Asian buyout firm were potential suitors of Cocoaland.

But nothing was firmed up until F&NHB launched its RM488.15 million takeover bid for the shares it did not already own in Cocoaland on June 3. For F&NHB, the acquisition was in line with its ambition to be a stable and sustainable food and beverage leader in Asean, with halal packaged food as its fourth pillar of growth. Singapore-listed Fraser and Neave Ltd holds 55.48% equity interest in F&NHB.

F&NHB said the acquisition of Cocoaland would add established Malaysian confectionery and snack brands to its portfolio of soft drinks, dairy and food products and enhance the group’s expansion overseas. Cocoaland has four production facilities and a warehouse in Rawang, Selangor.

At that point, F&NHB already held 27.66% equity interest in Cocoaland and was the company’s second-largest shareholder. This left 325.43 million shares or a 72.34% stake for the group to mop up.

The offer price to take Cocoaland private via a members’ scheme of arrangement stood at RM1.50 per share, which its independent adviser Malacca Securities Sdn Bhd deemed to be fair as it fell within the upper range of equity value ascribed to Cocoaland of RM1.21 to RM1.66. The deal also valued the company at a price-to-book ratio of 2.77 times its net assets of 54 sen per share as at Dec 31, 2021. Moreover, the offer price was a huge premium of 26% over the prevailing market price of RM1.19.

F&NHB reassured Cocoaland that it did not have plans to dismiss or make redundant any of the existing employees after the privatisation.

Incorporated in June 2000, Cocoaland is a profitable venture, posting a net profit of RM21.86 million for the financial year ended Dec 31, 2021 (FY2021), up 7% from RM20.42 million in FY2020. For the first six months ended June 30, 2022 (1HFY2022), its net profit jumped 69.9% to RM15.2 million from RM8.95 million a year earlier.

Although Cocoaland had not adopted a dividend policy, the total dividends paid out over the past 10 years came to an average of 70%. The company’s cash balance stood at RM96.537 million at end-June.

Two months after the takeover bid was launched, in August, shareholders approved the deal. On Nov 4, the privatisation was completed and the shareholders had already received their money. Trading in the shares of Cocoaland was suspended on Oct 21 and the stock was delisted from the Main Market of Bursa Malaysia on Nov 25.

Cocoaland is now a wholly-owned subsidiary of F&NHB, with 27.62% directly held by the group and the remaining 72.38% through its wholly-owned subsidiary Awana Citra Sdn Bhd.

CGS-CIMB Research analyst Walter Aw was positive on the acquisition as he believes Cocoaland’s products would strongly complement F&NHB’s current product range. “The acquisition will allow F&NHB to offer a broader product range, especially given its plan to expand its halal food pillar. We gather that F&NHB is of the view that Cocoaland products have similar consumption patterns as its current product range,” he wrote in a Nov 10 note to clients.

“In our view, we think the acquisition will yield strong business synergies, especially with F&NHB’s ability to market Cocoaland’s products via the former’s larger distribution network.”

Aw said that assuming the RM488 million acquisition was fully debt-funded, F&NHB would have a net gearing of 0.1 times. Its net cash stood at RM319 million as at Sept 30, 2022. “We raise F&NHB’s FY2023-2025 earnings per share by 0.9% to 2.4% to account for Cocoaland’s contribution and higher sales volume.”

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