KUALA LUMPUR: The Employees Provident Fund (EPF) has emerged as the leading partner of Johor Corp (JCorp) in the latter’s proposal to privatise QSR Brands Bhd and KFC Holdings (M) Bhd (KFCH), while private equity fund CVC Capital Partners’ role has been reduced to that of minority partner.

In a statement yesterday, the EPF said it has acquired a 51% stake in Melati Asia Holdings Ltd (MAHL) from CVC Capital, which is left with the remaining 49% stake. MAHL and JCorp are in turn 49:51 partners in Massive Equity Sdn Bhd (MESB) that has proposed to take over QSR and KFCH, which holds the lucrative franchise for KFC and Pizza Hut restaurants in Malaysia.

Combining the EPF’s effective 25% stake and JCorp’s 51% direct interest in MESB, the state investment arm has strengthened its takeover proposal against the objections of certain parties that QSR and KFCH should be kept in Malaysian hands. Before this, Hong Kong-based CVC Capital was to have 49% in the deal.

EPF deputy CEO for investment Datuk Shahril Ridza Ridzuan said the retirement fund’s investment in MAHL, hence MESB, offers exposure to a “highly cash-generative business” which is expected to fulfil its long-term objective of achieving sustainable growth in its portfolio.

“The KFC and Pizza Hut brands have been market leaders in Malaysia for decades and we look forward to enhancing the brands and their market share even further in future,” Shahril said in a statement jointly issued with JCorp.

JCorp president and CEO Kamaruzzaman Abu Kassim said the EPF’s presence in MESB puts JCorp “on a firmer footing to ensure greater corporate governance” and continued growth for the state investment arm’s prime investments.

In December last year, JCorp and CVC Capital via MESB made a joint takeover offer for the assets and liabilities of QSR and KFCH.

The takeover offer via MESB valued QSR at RM2.06 billion or RM6.80 a share while the offer price for KFCH at RM4 a share gave the fast food chain operator a market capitalisation of RM3.17 billion. MESB had also offered RM3.79 and RM1 for each warrant in QSR and KFCH respectively.

Updates from annual reports and exchange filings show that JCorp owns 56% in Kulim (M) Bhd which in turn has 57% in QSR. QSR, meanwhile, has a 51% stake in KFCH. Note that the EPF already owns 6% in Kulim and 0.39% in QSR.

The initial proposal by JCorp and CVC Capital was not well received by certain parties. The Malay Chamber of Commerce Malaysia (MCCM) argued that the original shareholding structure has diluted local investors’ ownership in the prized assets of QSR and KFCH in the fast food business. As such, MCCM offered to acquire Kulim’s entire stake in QSR. But Kulim’s board rejected the offer.

Via KFCH, QSR operates over 640 KFC outlets Malaysia, Singapore, Brunei, Cambodia and India, apart from 27 RasaMas outlets across Malaysia and Brunei, according to KFCH’s website. KFCH also has 74 Kedai Ayamas outlets across Malaysia, according to the website.

Now that the EPF is on board, MESB is expected to sign definitive agreements with QSR and KFCH to formalise the acquisition of the companies’ businesses next week. QSR and KFCH, in separate statements to the exchange last month, said the agreements are expected to be signed no later than this Monday or a later date which is mutually agreed by the parties involved.

This article appeared in The Edge Financial Daily, May 18, 2012.