Good Deals, Bad Deals, Win-Win Deals

The way a company handle acquisition and disposal of assets tells us a lot about management's savvy and the way they would handle corporate strategy.



London Biscuits / Lay Hong / QL

I like QL and London Biscuits, but following the deal, I would have to take London Biscuits off the list. I liked their expansion plans, but obviously London Biscuits had no inkling of how to leverage, improve, rebrand, strategise their acquisitions. I doubt there was any positive value add management input from London Biscuits. Since they acquired Lay Hong, which was a good deal relative to Lay Hong's NTA, nothing has changed, Lay Hong was still barely profitable but trades at a 50% discount to NTA. Its share price did not budge much from the time London Biscuits bought them a few years back. Why buy in the first place??? Yes, bought at a good price, so what, you loaded debt to do it, unless you think you can increase value in Lay Hong, or the earnings from Lay Hong would more than cover your interest cost, why buy?

Now, Lay Hong is a lot better than TPC, why two egg companies? Both also not profitable and you sell the more attractive one. How do shareholders of London Biscuits view your selling of Lay Hong, and then to see Lay Hong's share price double literally in a matter of days??? What does that tell you???

That was a good deal by QL but a very bad deal for London Biscuits. Was it to pay down debts? Your debt level was just as high a year ago, and almost the same as when you loaded debt to buy Lay Hong, what gives?

I don't think its necessary to bring down debts by selling Lay Hong. They have been poorly advised. If you know there is deep value in Lay Hong, you should be selling close to NTA. If the buyer is not willing, then take QL shares, not cash. At least you can ride the unlocking of value in Lay Hong. Now London Biscuits look very silly indeed. If anyone asks London Biscuits about the Lay Hong deal now, they can only shrug their shoulders. Sigh...

Cocoland / F&N

Win-win deal. Fun is over when investors realise that F&N bought their stake at such a deep discount. Couldn't fault Cocoland as the deal would secure a big customer and a platform to emlarge earnings. This shows Cocoland management having the vision to forgo a bit to gain a lot. Look at where their share price is now.

3A / Wilmar

Win-win deal. Same as above. If I was 3A, I would have done the deal at 50 sen even, because the platform would be so enlarged and the prospects improving by multiples with just Wilmar inside.

MFCB / Jadi

It may not make sense to many but I think MFCB is on a winner and will be able to leverage and extract more value by having Jadi into its stable. Win-win deal.

Management needs to know when to do deals and using the right way. It can be cash, convertible notes, shares issuance, even a put and call deal ~ each option is important in its own way depending on how things would flesh out following the deal. An asset may be multiplied in a different company's ownership. There has to be consideration of "opening of doors", "whether you can take the asset to the next level", etc...

In the same note, advisers and bankers should be able to advise these deals better and not just do the deals for deal making sake, just to earn some fees.