KUALA LUMPUR: UEM Group Bhd and the Employees Provident Fund (EPF) maintained that their proposed acquisition of the entire assets and liabilities of PLUS Expressways Bhd, for RM23 billion or RM4.60 per share, benefits all stakeholders and that the offer is “fair”.

In a packed press conference held yesterday, UEM group managing director/chief executive officer Datuk Izzaddin Idris said the takeover offer of RM4.60 per PLUS share reflected a “fair price” for the shareholders of PLUS as it represented a premium of 14.7% and 21.7% respectively to the highway operator’s three-month (RM4.01) and six-month (RM3.78) volume-weighted average price (VWAP).

He noted that the offer price was above the all-time high reached by PLUS since it was listed on Bursa Malaysia in 2002 as its shares closed at a peak of RM4.46 on Oct 13, 2010, which was the last day of trading prior to the temporary suspension.

“We feel the price is fair simply because if you see the value ascribed by the various analysts, it ranges from something below RM4 (per share) to all the way up to RM5+,” said Izzaddin.

He pointed out that in any analysis, the share price always traded at a discount to the discounted cash flow (DCF) value as there would be “assumptions” at the end of the day attached to the DCF value.

However, he stressed the RM4.60 per share “effectively” took away those “assumptions”, citing that the offer price had taken into consideration Prime Minister Datuk Seri Najib Razak’s Budget 2011 announcement that there would be no increase in the four highways operated by PLUS for a five-year period.

Nonetheless, analysts were mixed on the offer price of RM4.60, while PLUS’ share price yesterday fell 12 sen to close at RM4.34 with turnover of 33.26 million units. The counter had risen 33.13% year-to-date.

Data services indicated that of the 23 stockbroking firms tracking the stock, there were 13 buy recommendations, eight holds and two sells. PLUS is trading at a consensus estimated price-earnings ratio of 17.02 times.

The acquisition of PLUS is through a co-investment vehicle which will be 51%-owned by UEM and the balance 49% by EPF. At present, UEM and its parent Khazanah Nasional Bhd collectively hold 55.25% of PLUS, of which 15.02% has been pledged against exchangeable trust certificates issued by Khazanah. EPF has a 12.03% stake in the highway operator.

The UEM-EPF’s takeover of PLUS’ assets and liabilities for RM23 billion will leave the highway operator with no business but with plenty of cash, which will then be distributed to the shareholders through a proposed special dividend and selective capital reduction. With that, PLUS will subsequently be delisted upon completion of the takeover exercise which could take between eight and 12 months.

EPF: PLUS provides steady long-term cash flows
The joint-offerers (UEM and EPF) said the acquisition of PLUS will lock in an investment with steady long-term cash flows.
They believed the deal made sense at many levels as the offer is being made by PLUS’ existing shareholders who collectively own more than 50% of the highway operator. Nevertheless, they would preclude themselves from voting at an impending EGM where minority shareholders would shoulder the responsibility whether the takeover gets the nod.

“From an EPF point of view, we view it basically as a good opportunity for us to invest in mature assets which have a very stable and predictable cash flow. It gives us a kind of risk return profile which is suitable for a provident fund like the EPF,” said EPF deputy chief executive officer (investment) Shahril Ridza Ridzuan.

He said retirement funds typically invest in infrastructure assets such as power plants and toll highways as they were “steady and predictable” generators of cashflow, adding that EPF members would directly benefit from profits generated from the highways.

“If successful, this will provide stable returns for our 12 million members’ retirement savings,” said Shahril noting that the joint ownership would be able to improve PLUS’ financial performance further.

He also said EPF viewed PLUS as a good long-term investment with a steady yield and attractive returns and that EPF would be able to increase its stake in the highway operator to 49%.

“PLUS, which is the fifth largest expressway operator in the world, is a key national asset which we are looking to at preserving. Highway users can rest assure that PLUS’ standards of service and maintenance will be preserved,” said Izzaddin adding that UEM, as the controlling shareholder, would also be able to leverage on PLUS’ track record for its international growth plans.

Nonetheless, besides PLUS’ shareholders approval, Izzaddin also said completion of the takeover also needed approval from creditors of PLUS and its subsidiaries, regulatory authorities and sanction of the High Court.

“It is also subject to discussions with the government on a new concession agreement. The offer is subject to the successful restructuring of the concession agreement on acceptable terms to all parties,” he said, confirming that the government owes PLUS almost RM1 billion per year from previous deferment of scheduled toll hikes.

Pressed on the exact amount the government is owing PLUS in terms of compensation, Izzaddin replied: “In the balance sheet, there is an amount owing (from the government) of RM2.5 billion as of June 30 this year.”

On whether the government stood to compensate PLUS an extra RM5 billion with no toll hikes in the next five years, he said the amount would be less than RM5 billion as there was an existing mechanism for compensation but did not elaborate.

This article appeared in The Edge Financial Daily, October 19, 2010.