Goodpack

CIMB Research, May 28

GOODPACK and private equity firm KKR have entered into an agreement for the acquisition of Goodpack's entire share capital at S$2.50/share, by way of a scheme of arrangement.

The scheme has a long-stop date of Oct 31, 2014, and requires 75 per cent shareholder approval at an EGM which will be held in due course.

The S$1.4 billion offer values Goodpack at 12.6 times FY2013 EV/Ebitda - higher than the average buyout multiple of 7.5 times and the average exit multiple of 11.5 times for global PE deals in H1 2013, according to data compiled by Mergermarket.

On a PE basis, the offer price of S$2.50/share implies 17.5 times consensus FY2015 PE (15.3 times FY2016 PE). Goodpack has historically traded at an average of 15 times forward PE, which we think is a fair multiple based on its forecasted earnings growth of 13-14 per cent in FY2015-17.

Thus, KKR is offering shareholders what Goodpack should be worth next year, one-year forward.

We believe that KKR's offer to buy Goodpack for S$1.4 billion is fair, although investors may have been hoping for a higher offer price given that:

1) its closest listed competitor, Brambles, trades at a higher PE multiple; and

2) the offer price only represents a 7 per cent premium over the prior closing price.

We think that the deal is fair, and advise investors to take the offer. While the offer price represents only 7 per cent premium to the prior closing price, we believe that investors have already largely priced in a takeover scenario.

If the deal falls through, we expect Goodpack's share price to trace back to the S$1.90-S$2.00 levels that it was trading at prior to its announcement on March 19 that it was in talks with several parties over a potential takeover offer (13 times-14 times FY2015 PE).

Our recommendation changes from "add" to "hold" due to limited upside to the offer price. Our target price is unchanged at S$2.51, based on 15 times FY2016 PE (seven-year mean).

HOLD