You might recognize some of the brands shown in the image below. There’s even a chance that you enjoy and frequent some of these establishments.
These brands belong to the SGX-listed company, RE&S (SGX:1G1). You might not be aware that the share price has jumped 30%, unless you are a shareholder.
The reason is that a private equity firm, Southern Capital Group, has offered to buy out RE&S and delist it from the Singapore Exchange.
The Offeror has given shareholders two options. The first is to receive S$0.36 per share in cash, and the second is a mix of cash and shares: S$0.33 in cash and 0.083143 shares in the delisted entity.
The offer appears attractive, as it is higher than the stock’s highest trading prices and is also 63.6% above the IPO price of S$0.22 from seven years ago.
In terms of price multiples, the Offer Price indicates a P/E ratio of 25x. This is reasonable, considering another Japan concept F&B stock, Japan Foods (SGX:5OI), is trading at a P/E of 23x.
There has also been a series of delistings for F&B stocks in the past few years. Food court operator Koufu was delisted at a P/E of 21x, with shareholders offered the highest ever traded price. Neo Group, a caterer, saw shareholders being offered the highest traded price too and a P/E of 14x.
Taken in totality, this shows that the Offer is quite fair and follows a pattern seen in F&B stock delisting offers.
Even the largest shareholders are agreeable to selling most of their stake to the private equity firm. Tatara Hiroshi, the largest shareholder of RE&S, will see his stake of 62.32% dwindle to just 9.9% if the deal is completed.
The Offeror and the directors in concert collectively hold 84.1% of the free float, and given that the offer is fair, it seems likely that the delisting will proceed smoothly.
This will be a scheme of arrangement, requiring shareholders to vote at a meeting. The date and logistics of the meeting will be announced subsequently. For the Offer to be approved, at least 75% of the votes must be in favor. This means it is an all-or-nothing arrangement: shareholders will only be able to sell their stock at the Offer price if the required approval is obtained. Otherwise, the deal will fall apart. Shareholders who are happy with the Offer and wish to exit earlier can sell their stock in the open market, albeit at a price below the Offer price.
The Offeror intends to maintain business as usual, with the current management continuing to run the company even after selling the majority stake. Typically, private equity buyouts target good companies that they believe they can enhance, making them bigger, better, and more valuable over time. Therefore, it is unfortunate that another stock will become unavailable to retail investors following a delisting.
There are still several F&B establishment stocks listed on SGX:
| F&B Establishment Stock | Code | Brands | PE Ratio | Dividend Yield |
| ABR | (SGX:533) | Swensen’s, Chilli Api Catering, Chilli Padi, Earle Swensen’s, Season Confectionary and Bakery, Season Cafe, Tip Top Curry Puff, Yogen Fruz | 27x | 2.66% |
| Japan Foods | (SGX:5OI) | Ajisen, Afuri, Akimitsu, Extra Virgin Pizza, Kageyama, Konjiki Hototogisu, Maze Soba Hototogisu, Menya Musashi, Menzo Butao, New ManLee Bak Kut Teh, Osaka Ohsho, Tori Sanwa, Yonehachi, BBQ Seoul Shokudo, Edo Shokudo, Fruit Paradise, Katsuyoshi, Kyoto Shokudo, Godaime, Milan Shokudo, Pizzakaya, Tokyo Shokudo, Yakiniku Kai, Yakiniku Shokudo, Yakiniku Taro | 23x | 5.2% |
| Jumbo | (SGX:42R) | Jumbo Seafood, Chui Huay Lim Teochew Cuisine, Zui Yu Xuan Teochew Cuisine, Chao Ting, NG AH SIO Bak Kut Teh, Kok Kee Wonton Noodle, Lau Lim Mee Pok, Tsui Wah, Mutiara Seafood, Love Afare, Singapore Seafood Republic | 10x | 5.88% |
| Katrina | (SGX:1A0) | Bali Thai, Streats, So Pho, Honguo, Tomo Izakaya, Sanchos | Loss | Nil |
| Kimly | (SGX:1D0) | Kimly, foodclique, tenderfresh, Kedai Kopi, Tonkichi, Klovex | 11x | 6.73% |
| NoSignboard | (SGX:9I7) | No Signboard restaurants | Loss | Nil |
| Old Chang Kee | (SGX:5ML) | Old Chang Kee, Curry Times, Dip n Go | 11x | 2.8% |
| Pavillon | (SGX:596) | Thai Village Restaurants | Loss | Nil |
| Sakae | (SGX:5DO) | Sakae Sushi, Hei Sushi, Sakae Teppanyaki, Sachi, Senjyu, Crepes & Cream, Nouvelle | 51x | 3.23% |
| Soup Holdings | (SGX:5KI) | Soup Restaurant, Teahouse by Soup Restaurant, Cafe O, Pot Luck, Little Teahouse | 12x | 2.7% |
| ST Food Group | (SGX:DRX) | PapaRich, Nene Chicken, Hokkaido Baked Cheese Tart, PAFU, iDarts, Ippudo, Gong cha, Kurimu, MAITA, Homm | 25x | 2.62% |
| Tung Lok | (SGX:540) | Tong Le Private Dining, Tung Lok Signatures, Tung Lok Peking Duck, Tung Lok Seafood, Tung Lok Heen, Ling Zhi Vegetarian, Lao Beijing, Tung Lok Teahouse, Dancing Crab, QIN, Slappy Cakes, Douraku Sushi, Ushio, Home Fiesta, Singapore Seafood Republic, Anthemble | 7 | 8.19% |
| YKGI | (SGX:YK9) | Yew Kee Duck Rice, My Kampung Chicken Rice, Kampung Kopi House, XO Minced Meat Noodle, Victoria Bakery, Food Courts, CHICHA San Chen, PastaGo | 30x | 2.63% |
However, some of these companies may also face delisting risks. The reason is simple: there is little incentive to stay listed and pay listing fees when management does not need to tap capital markets for expansion funds. Instead, they are paying dividends to shareholders. Even if they consider a placement or rights issue, it doesn’t make sense when share prices are low. Additionally, employees may not feel incentivized by stock options if liquidity is low and the stock is hard to sell or remains undervalued. Thus, management would rather buy out minority shareholders and keep the business private.
This is why I believe more F&B establishment stocks may face delisting, especially those with lower price multiples and higher dividend yields.
Just wondering. What is the implications if minority shareholder choose Option 2 (cash plus share)?
The Offerer Shares are not traded on any exchange. There isn’t any means to assess if offerer shares is a fair deal for minority shareholders too. I believe the major management shareholders will likely go for Option 2, but minority shareholders don’t have any such inside info as discussion is private with major management shareholders only.
From the announcement, Option 2 is also available to every shareholder. Do you have any opinion on this matter?
Yes, you will own part of a private company for option 2. The current directors will still have stakes in the private co. The problem is that you have to find a buyer yourself should you want to sell shares in a private company. Troublesome. Better to just get cash and move on.