KUALA LUMPUR (July 31): Stella Holdings Bhd is acquiring construction firm Pembinaan Teguh Maju Sdn Bhd (PTM) for RM380 million in a related party transaction.

The purchase consideration translates into an implied price-to-earnings multiple (P/E multiple) of 9.5 times.

Stella said RM100 million of the purchase consideration will be paid in cash via bank borrowings, while the remaining will be settled via the issuance of 350 million new shares at an issue price of 80 sen per share.  

The acquisition comes with a profit guarantee provided by the vendors. They have guaranteed that the profit after tax of PTM for the financial year ending June 30, 2024 (FY2024), FY2025 and FY2026 will not be less than RM120 million on an aggregate basis.

The vendors are Stella executive deputy chairman Datuk Lau Beng Wei, managing director Datuk Lau Beng Sin, Teo Boon Hing, Datuk Shanmuga Indran, Pang Fong Mui, Lee Chee Kiang, Datuk Ang Hung Teck and Loh Khoon Chiang.

Both Beng Wei and his brother Beng Sin, together with their investment vehicle Varia Engineering & Services Sdn Bhd (VES), held a controlling stake of 51.74% in Stella as at June 30, 2023.

Post-acquisition, their equity interest in Stella is expected to increase to 61.4% in aggregate. Accordingly, this will not trigger any obligations under the rules on takeovers, mergers and compulsory acquisitions, the group said.

The proposals are expected to be completed by the fourth quarter of 2023. Upon completion, Stella will hold a 100% equity interest in PTM.

Stella said its management views PTM to be a strategic fit and is complementary to the Stella group as PTM’s strength is in securing contracts, involving civil engineering jobs, roadworks, infrastructure works, building construction and maintenance projects as well as mechanical and electrical works. This is evident from the existing secured order book and tender book of PTM amounting to RM1.38 billion and RM1.13 billion respectively as at June 30,” said Stella.

Stella has also proposed to undertake a private placement to raise RM40 million — about 75% of its market capitalisation of RM53 million — mainly for the working capital requirements of its construction business.

The private placement entails the issuance of up to 50 million new shares, representing approximately 74.63% of the total number of issued Stella Shares as at the LPD or 11.99% of the company’s enlarged total number of issued shares post-completion of the proposed acquisition.

The placement shares shall be placed to third party investors  to be identified later.

For illustration purposes, assuming an indicative issue price of 80 sen per placement share (Illustrative placement issue price), the illustrative placement issue price represents a 1.87% premium to the five-day volume-weighted average price of Stella shares up to the last market day prior to the date of this announcement of 78.53 sen.

Due to the proposed acquisition being a related party transaction, Sierac Corporate Advisers Sdn Bhd has been appointed by the board to act as an independent adviser to advise the non-interested directors and non-interested shareholders of Stella in respect of the proposed acquisition.

Stella’s shares price closed one sen or 1.28% higher at 79 sen on Monday (July 31). Year-to-date, the stock has fallen by 21%.