Friday, 12 September 2014 01:11
Fast-growing conglomerate buys 45% stake for Rs. 2.7 b; Otara and brothers exit
Mandatory offer on at Rs. 22 per share; Malaysia/Singapore's Parkson holds 47% but unclear about its stand
Bullish Ashok Pathirage hails Otara for building a top brand as he braces for his biggest acquisition
Says willing to work with foreign party or go solo; commits to take Odel to next level with focus on mega Mall
HNB finances the deal
Fast-growing Softlogic Holdings Plc yesterday created a sensation when it acquired a strategic 44.5% stake in popular fashion retailer Odel Plc for Rs. 2.7 billion, triggering the Takeovers Code.
Odel saw 124 million of its shares changing hands via 621 trades for Rs. 2.73 billion. Softlogic Group bought 120 million shares at Rs. 22 and collected some at below. Odel hit an intra-day high of Rs. 22.20 and a low of Rs. 21.60 before closing at Rs. 22, up by 50 cents.
Odel Founder and CEO Otara Gunewardene sold 80.8 million shares for Rs. 1.78 billion, brothers Ajit sold 39 million shares and Ruchi shed one million shares. Strike price of the deal was viewed as a win-win for both parties. Net asset per share as at June 2014 was Rs. 19 at Group level and Rs. 17 at company level whilst Odel has maintained a good dividend track record too among newly-listed entities.
In what analysts maintained as a deal in the making for over two months, the acquisition boosted the overall business and market sentiment as it heralds what would be aggressive business leader Ashok Pathirage-led Softlogic Holdingsâ€™ biggest acquisition worth Rs. 6 billion if the rest of the shareholders accept the mandatory offer.
The controlling shareholder of Odel is Parkson Retail Asia Ltd., Malaysia, which holds 47.46%. It couldnâ€™t be confirmed whether Parkson will exit too. It paid between Rs. 23.50 and Rs. 22.70 per share in originally acquiring 42% stake in July 2012 for Rs. 1.43 billion.
Financing for the acquisition had been by HNB with Softlogic Holdings Plc and Softlogic Retail Ltd., taking up 50% each of the stake bought yesterday.
As at end FY14 Odel had 6,483 shareholders of whom 5,590 held between 1 and 1,000 shares or just 0.58% and a further 774 holding 1,001-10,000 shares with a collective holding of 0.9%.
Ashok told the Daily FT that the acquisition made perfect sense and reflects clear strategy given Softlogicâ€™s growing dominance in the branded lifestyle and retail business.
â€śWe are bullish and confident of the countryâ€™s future prospect given the rebound in per capita income, lifestyles and tourism post-war,â€ť said Ashok whose Softlogic retail business encompasses branded apparel, clothing such as Nike, Levis, Girodano, Tommy Hilfiger and Charles & Keith and consumer electronics including Samsung among others.
â€śOtara has done a great job in building Odel and I am confident that Softlogic can take it to the next level,â€ť he added.
Odel has grown to a Rs. 4.6 billion business in terms of revenue from around Rs. 3 billion in 2011. Net profit has been averaging at around Rs. 200 million level during the past four years. Its bottom line like for all others in retail business had been hit by the extension of VAT thinning margins.
Odel, having begun from a boot of a car, is now a chain of 20 fashion forward stores and recently turned 25 years. It is said to be having a footfall of around 5,000 people daily whilst Odel is a favourite among tourists.
With substantial land bank in Colombo 7 and Battaramulla, Odel was bracing for further expansion. It announced plans for a mega mall in Colombo 7 after acquiring additional land in Alexandra and Ward Place for Rs. 800 million in April this year. The entry of Parkson into Odel made expansion plans more definitive.
Ashok said he is open to working with Parkson if it remains as it would be a perfect fit to Softlogic plans. Experience and expertise of Parkson in operating mega malls will be highly beneficial.Â â€śIf Parkson decides to exit, then we will be more determined to make Odel a greater success with synergies we have in our expanding retail business,â€ť Ashok added.
In recent years Softlogic has been aggressive on the retail space and today it is the biggest branded goods retailer with a growing footprint. It commands around 40% space at the newly-opened Arcade at Independence Square whilst it will also be highly visible in the upcoming new shopping area at Liberty Plaza in Colombo 3.
â€śIn the retail business, effective presence at popular locations is critical, apart from having the right products. Softlogic has delivered on these so far and the business is growing,â€ť emphasised Ashok, who said the high-end segment of the retail business was doing very well although the rest have their ups and downs.
â€śIf retail doesnâ€™t work in Sri Lanka, then we have a big issue. With tourism booming and per capita income and lifestyles improving, branded retail business is poised to grow much higher in the future.Â Success depends on how your position yourself and the brands you have along with the experience for the consumer/shopper. Softlogic is perfecting this strategy,â€ť Ashok said.
In the first quarter, the retail sector contributed 25.6% to Softlogic Group turnover, registering a 10.7% growth to record Rs. 2.1 b during the period. This growth was led by growing footfall rates of existing showrooms coupled new brands, store expansion, and increased product sales.
Operating profit reduced 39.9% to Rs. 154.7 m in comparison with Rs. 257.5 m in 1QFY14. The decline in operating profit was as a result of operational expenses led by increasing outlets (pre-operational costs and costs associated during the familiarisation period).
Sectorâ€™s PBT declined 64.6% to Rs. 60.4 m while PAT reduced 57.5% to Rs. 85 m during 1QFY15. Softlogic viewed this segment on a medium term scale when contributions accumulate.