BCorp to buy 70pc of Ascot for RM525m
2010/05/12
BERJAYA Corporation (BCorp) Bhd has announced plans to acquire a majority stake in Malaysia's first legalised sports betting operation.
In a statement, the company said its chairman and chief executive officer, Tan Sri Vincent Tan, has offered to sell 70 per cent of his company Ascot Sports Sdn Bhd to BCorp for
RM525 million in cash.
Ascot Sports has a paid-up share capital of RM80 million comprising shares of RM1 each and based on the sale price,
the price per share is RM9.375.
"Ascot Sports has been re-issued the sports betting license by the Ministry of Finance which was first issued in 1987. Ascot Sports has the first-right-of-refusal in the event the Government decides to allow sports betting which it has now in view of the rampant illegal book making activities being conducted," BCorp said.
Tan has agreed to guarantee that the company will make a cumulative after tax profit of at least RM375 million for the first 3 years of operations.
To back this profit guarantee, he has
offered to deposit RM81.25 million worth of listed securities and BCorp will withhold RM125 million cash from the total consideration of RM525 million which will be released annually upon achievement of profits proportionate to the guarantee.
Hence, the initial consideration will be RM400 million.
BCorp has also announced its proposal to call a rights of 8.0 per cent ICULS on the basis of one RM1 nominal amount 8.0 per cent ICULS for every eight BCorp shares held on the entitlement date.
This rights issue could potentially raise more than RM0.5 billion.
The 8.0 per cent ICULS will have a tenure of 10 years and are convertible at par by surrendering one RM1 8.0 per cent ICULS for one new BJ-Corp share of RM1 each.
A portion of the funds raised will be used to pay the initial consideration of RM400 million with the remaining to be deployed for working capital of the Group.
BCorp said Tan has undertaken to subscribe to his and his private companies’ entitlements in full which would amount to at least RM400 million.
"Tan Sri Vincent Tan will not net in any cash as he will reinvest the entire initial consideration to be received to honour his rights issue obligations," the statement added.
Ascot Sports is set to become the next big money spinner for BJ-Corp.
Comparing examples in Singapore and Hong Kong where legalized sports betting has been in operation for a number of years, the market is seeing consistent double digit compound growth rates, BCorp said.
The Hong Kong Jockey club for instance had revenues of about HK$35.0 billion (about RM15.0 billion) whilst Singapore Pools revenue is estimated at a few billion Singapore Dollars.
"By some estimates, the illegal sports betting market in Malaysia is thought to be as much as RM20 billion per annum. This represents a tremendous loss of tax revenue to the Government which Ascot Sports hopes to be able to mitigate."
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Based on the RM375 million profit guarantee, the net profit averages at about RM125 million per annum. At the implied value of RM750 million for 100 per cent of Ascot Sports, the acquisition PE multiple is about 6.0x, which is an exceptionally low multiple given the enormous potential for the industry.
"The Board of BCorp expressed its gratitude to Tan Sri Vincent Tan for having offered this remarkable 'Sweetheart' deal to the Company. The Board recognizes that typically, one would probably have to pay a high double digit PE multiple with no profit guarantee if such a business is sold with an established earnings track record," the company said.
AmInvestment Bank has been appointed the Main Adviser whilst OSK Investment Bank has been appointed the Independent Adviser.
http://www.btimes.com.my/Current_News/BTIMES/articles/20100512201745/Article/index_html
The deal:
- BCorp to buy 70% of Ascot from Vincent Tan for RM 525 million in CASH.
- Tan has agreed to guarantee that the company will make a cumulative after tax profit of at least RM375 million for the first 3 years of operations.
- BCorp will withhold RM125 million cash from the total consideration of RM525 million which will be released annually upon achievement of profits proportionate to the guarantee.
- BCorp to propose rights issue to raise more than RM 614.5 million.
- Rights issue will be used to pay Vincent Tan for the Ascot shares (RM 400 million) and the rest for working capital.
- Tan has undertaken to subscribe to his and his private companies’ entitlements in full which would amount to at least RM400 million.
- Tan will not net in any cash as he will reinvest the entire initial consideration to be received to honour his rights issue obligations.
Before the exercise
- Vincent Tan owns Ascot 100%
- BCorp owns 0% of Ascot
After the exercise
Vincent Tan owns
- 30% of Ascot and RM 525 million cash.
- RM 125 million cash is held by BCorp to be released in stages.
- RM 400 million cash is used to subscribe to his portion of the rights issue (ICULS).
- Tan will not need to fork out cash as he will reinvest the entire initial consideration to be received from his disposal to subscribe to the rights issue.
BCorp Company
- owns 70% of Ascot.
- owes RM 614.5 million through rights issue in form of ICULS @ 8%.
BCorp minority shareholders
- own BCorp which has debt (ICULS) of RM 614.5 million and asset of 70% of Ascot
- give out of their pocket RM 214.5+ million to subscribe to their portion of the rights issue (ICULS) which is effectively a loan to be repaid at a later date.
