KUALA LUMPUR (Aug 13): Ajinomoto Co Inc, the parent of Ajinomoto (Malaysia) Bhd (KL:AJI), has defended its RM20 per share offer price for Ajinomoto Malaysia Bhd (AMB), saying it represents a reasonable premium and reflects the company’s business value and historical share performance.
In response to The Edge article titled “‘Lowball’ offer raises questions about Ajinomoto’s privatisation”, Ajinomoto said Ajinomoto Malaysia should be valued based on its own historical valuation, rather than compared with other consumer goods company such as Nestle Malaysia Bhd (KL:NESTLE), which has a higher valuation multiple due to its larger scale and stronger market position.
“While we recognise that there are different views regarding appropriate enterprise value-to-earnings before interest, taxes, depreciation and amortisation (EV/Ebitda) multiples for consumer goods companies, we believe that valuation assessments should consider not only industry classifications but also company-specific factors such as business scale, growth prospects, profitability, financial strength and share liquidity,” it said in a letter dated Aug 13, to the board of Ajinomoto Malaysia.
Ajinomoto said Ajinomoto Malaysia’s average EV/Ebitda multiple in the year before the proposed selective capital reduction (SCR) announcement was 4.26 times, while the RM20 offer implies a multiple of 8.05 times, or about 89% higher.
It said comparing Ajinomoto Malaysia with Nestle Malaysia using EV/Ebitda multiples was inappropriate because Nestle is much larger, has a stronger market position, more stable earnings and a higher market capitalisation. Ajinomoto said Ajinomoto Malaysia’s own historical valuation was therefore a more relevant benchmark.
Ajinomoto also disputed an independent analyst’s RM26.20 valuation for Ajinomoto Malaysia, saying the comparison companies used in the report were not suitable benchmarks.
It said comparing Ajinomoto Malaysia’s implied 16.9 times price-to-earnings (P/E) ratio at the RM20 offer price with its own 44.4 times P/E was inappropriate because the two companies differ significantly in scale, business mix, earnings and growth prospects.
Ajinomoto is a much larger global food and biotechnology company, with a growing semiconductor-related business that supports its higher valuation. In comparison, Ajinomoto Malaysia is mainly a Malaysian seasoning manufacturer, with a market capitalisation of less than 1% of Ajinomoto’s.
Ajinomoto said the analyst’s 18–25 times P/E valuation range was not appropriate because the four companies used for comparison were much larger and more diversified than Ajinomoto Malaysia. It noted that Ajinomoto Malaysia’s own average P/E in the year before the SCR announcement was 11.35 times, significantly below the analyst’s range.
Ajinomoto maintained that the RM20 offer provides shareholders with a meaningful premium and is not an attempt to acquire Ajinomoto Malaysia at an unfairly low price. Ajinomoto owns a 50.376% interest in Ajinomoto Malaysia.
Ajinomoto Malaysia is due to convene a shareholders meeting to vote on the proposed SCR. For the deal to go through, 75% of the 30.17 million units of minority shareholders’ shares must vote for it, with not more than 10% of the minority floating against it.