BreadTalk founder makes S$0.77-per-share offer in privatisation bid after Q4 net loss

BREADTALK Group's George Quek, his wife Katherine Lee and a substantial shareholder have together made a voluntary conditional cash offer to acquire all issued ordinary shares in BreadTalk at S$0.77 apiece, with a view to delist the food and beverage player.

This also comes as BreadTalk has sunk into the red for its fiscal fourth quarter and 2019, and is in technical breach of the financial covenants for its S$100 million notes due in 2023, according to separate filings late on Monday night.

The offeror is BTG Holding Company, a special purpose vehicle ultimately owned by Mr Quek, who is BreadTalk's founder and chairman; Ms Lee, who is BreadTalk's deputy chairman and executive director; as well as Minor International, a Thai-listed hospitality and leisure company.

Minor International owns 99.7 per cent of The Minor Food Group, which in turn wholly owns Primacy Investments, a substantial shareholder of BreadTalk with a 14.2 per cent stake.

The offer price of S$0.77 per share represents a premium of about 19.4 per cent over the closing price of S$0.645 on Feb 21, and a 30.1 per cent premium over the one-month volume weighted average price.

In a regulatory filing, BreadTalk said the offer is an attractive opportunity for shareholders to exit their investment in the shares at a premium without incurring brokerage and other trading costs. The offeror believes that privatising BreadTalk will give the company more flexibility to address challenges it is facing, manage the business and optimise the use of BreadTalk's management and resources.

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If delisted from the Singapore Exchange (SGX), BreadTalk will also be able to save on expenses and costs relating to the maintenance of a listed status and channel these resources to its business operations.

Furthermore, the company has not carried out any exercise to raise equity capital on the SGX in the last 10 years. It is unlikely to require access to Singapore equity capital markets to finance its operations in the foreseeable future, seeing as it has other available funding sources such as bank borrowings, BreadTalk said.

The offer is conditional on the offeror receiving valid acceptances which will result in the offeror and concert parties holding more than 90 per cent of the total number of shares in issue as at the offer's close.

Each of Mr Quek, Ms Lee, Square Investment (an investment vehicle jointly owned by Mr Quek and Ms Lee) and Primacy Investment (a subsidiary of Minor International) has given an irrevocable undertaking to tender all the shares they hold in acceptance of the offer. They will also reinvest the consideration due to them to subscribe for new shares in the offeror.

As at Feb 24, these undertaking shareholders collectively own about 397.1 million shares, or about 70.53 per cent of BreadTalk.

Before the offer was announced, BreadTalk on Monday night reported a net loss of S$8.1 million for the three months ended Dec 31, 2019, versus a net profit of S$8.9 million a year ago. This translated to a loss per share of 1.44 Singapore cents for Q4, compared with an earnings per share of 1.58 Singapore cents in the year-ago period.

Revenue rose 10.1 per cent to S$170.4 million for the quarter, from S$154.8 million.

For the full year, the group posted a net loss of S$5.2 million, versus a net profit of S$15.2 million a year ago.

This was mainly attributable to S$6.1 million in one-off fixed-assets impairment due to premature outlet closures, inventory obsolescence, and franchise income doubtful debt provisions.

Also dragging BreadTalk's FY2019 performance were the widening losses at the bakery business in China and Thailand, widening losses across several brands such as Wu Pao Chun and Song Fa due to "challenging operating environments", and a "significant deterioration" in the financial performance of the Hong Kong bakery and food atrium businesses due to the social unrest in that region, the company said.

Looking ahead, BreadTalk noted that the operating environment faced by the group remains challenging across key markets, including Singapore, China and Hong Kong. The Covid-19 outbreak has added further challenges to the group's operations, and the uncertainty in Hong Kong will continue to have a negative impact to its business in the territory, BreadTalk said.

In a separate filing on Monday, BreadTalk disclosed that there has been a technical breach of financial covenants for its S$100 million 4 per cent notes which are maturing in 2023. This constitutes an event of default, the company said.

The technical breach was due to a 44.6 per cent decrease in accumulated profits for FY2019 compared to a year ago, in view of the group's net loss for the period and a shift in accounting policy.

Nonetheless, BreadTalk said the technical breach is "not indicative of any cash flow impact to the group". The company is still expected to be able to pay interest on the notes as and when such interest payments come due.

BreadTalk did not pass the thresholds for two of the financial covenants, based on its FY2019 performance including the SFRS(I) 16 accounting treatment of its leases in line with the new accounting standards.

For one, BreadTalk's consolidated tangible net worth was S$53.3 million last year, below the requirement of at least S$75 million. Moreover, the ratio of its consolidated total borrowings (net of cash) to consolidated tangible net worth was 3.55:1, which exceeds the maximum 3:1 threshold.

"The board wishes to assure shareholders, holders of the notes and potential investors that the company is currently evaluating all viable and available options in respect of the aforesaid breaches," BreadTalk said.

It is consulting with advisers and plans to engage the note holders in the coming weeks.

Last month, BreadTalk announced that its chief financial officer and chief investment officer, Chan Ying Jian, had resigned to pursue other career opportunities.

BreadTalk called for a trading halt on Monday morning, before lifting it shortly after midnight on Tuesday. It then requested another trading halt on Tuesday morning, pending the release of an announcement. The counter last traded at S$0.645 on Friday.