On May 4, news broke that CARiNG Pharmacy Group Bhd was officially going to delist from Bursa Malaysia on May 8, 2020.
This follows the completion of its takeover by 7-Eleven Malaysia Holdings Bhd, who had already expressed the intention to delist CARiNG back in December 2019 after launching a mandatory general offer (MGO).
Dictionary Time: A mandatory general offer is an offer that a shareholder must make to buy all the shares in a company when they already own a third of the company.Cambridge Dictionary
At the time, Convenience Shopping (Sabah) Sdn Bhd (CSSSB), a wholly owned subsidiary of 7-11 Malaysia and the parties acting in concert (PACs)—7-Eleven Malaysia, Tan Sri Vincent Tan, Jitumaju Sdn Bhd and U Telemedia Sdn Bhd—held a 63.78% stake in CARiNG, according to Bloomberg data.
CARiNG’s shares have been suspended since April 20, with its stock last traded at RM2.58, The Edge Markets reported.
So, what exactly is delisting though? It refers to the removal of a listed security from a stock exchange, and can be voluntary or involuntary.
Delisting usually happens when a company ceases operations, declares bankruptcy, merges, does not meet listing requirements, or seeks to become private.
A Voluntary Delisting
In CARiNG’s case, the delisting is voluntary following the takeover. While not many more details are known about the reasons behind its delisting, there are bits and bobs of information online that we could gather, but more on that later.
Now, the reasons behind why some companies might choose to go private vary: it could be when management is confident that the company is undervalued, or that they could save substantial money by operating as a private enterprise.
The latter can be identified by using a cost-benefit analysis, which might reveal that the costs of being publicly listed exceed the benefits of doing so. Thus, delisting to go private is usually a strategic move.
A situation like this can be referred to as corporate privatisation (which can also happen in a variety of ways). In order for a company to be considered privately owned, it cannot get financing through public trading via a stock exchange, hence CARiNG’s delisting.
As a result of no longer trading shares on public exchanges, the shares of these businesses are less liquid and their valuations will be more difficult to determine in general.
An Attractive Opportunity
Like we mentioned earlier, we don’t know all the details, but from what we can see, CARiNG has actually had a good track record in the past half a decade.
In October 2019, The Edge Markets took a look at what made CARiNG so appealing to shareholders and investors:
- They identified that the company had net cash of RM123 million at the time, making its net cash per share RM2.10.
- From 2015 to 2019, CARiNG’s revenue also grew from RM364 million to RM599 million, translating to a compound annual growth rate (CAGR) of 10.5%.
- Meanwhile, its net profit rose 9% year on year to RM26 million in its financial year ended May 31, 2019 (FY2019) from RM8 million in 2016, marking a CAGR of 34%.
Overall, CARiNG has been performing well with its rise in earnings, its increase in dividend payments thanks to that, and its expansion across Malaysia to more than 120 outlets in 2019.
Keeping The Businesses Independent
However, 7-Eleven Malaysia’s acquisition of CARiNG isn’t intended as a merger.
Pharmacy-cum-convenience stores may be commonplace in Western countries like the UK and US, said 7-Eleven Malaysia CEO Colin Harvey, but there still has yet to be a successful business model for such an operation in Asia.
Instead, the corporate previously said that the move would allow the group to expand its sales channels by leveraging CARiNG Pharmacy’s e-commerce network and infrastructure.
Following the acquisition, they would also get immediate access to a fully operational and profitable pharmacy business and open up opportunities to cross-sell products between the two businesses, reported The Edge Markets in February 2020.
- You can read more about CARiNG Pharmacy here.
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