Jerneh Asia Bhd is set to becoming an even more cash-rich company, as it may pocket RM523.2 million cash from the proposed disposal of 80% stake in its insurance arm Jerneh Insurance Bhd (JIB) to ACE INA International Holdings.
Industry observers said it would be interesting to see what tycoon Robert Kuok, who controls Jerneh Asia via a 37% stake, would do with the cash.
An industry source said Jerneh Asia was looking at acquiring assets to replace its core insurance business.
With the proposed sale of Jerneh Insurance, Jerneh Asia is effectively exiting its general insurance businesses locally. It however still owns overseas insurance operations and a takaful operating licence here via HSBC Amanah Takaful (Malaysia) Sdn Bhd. Jerneh Asia owns 31% of the takaful operator.
After nine months of discussions with various parties on the potential stake sale in JIB, its shareholders have proposed to sell their entire stake in the general insurer to ACE INA for a total of RM654 million cash.
ACE INA is a unit of global insurer and reinsurer ACE Group, and focuses on insurance businesses outside of the US and Canada.
In separate announcements to Bursa Malaysia yesterday, Jerneh Asia and Paramount Corporation Bhd said they had received the approval from the Ministry of Finance, through Bank Negara Malaysia (BNM), to dispose of their respective stakes to ACE INA.
Jerneh Asia owns an 80% stake in JIB, while Paramount Corp holds the remaining 20% in the insurer.
Both Jerneh Asia and Paramount said the RM654 million deal was subject to an adjustment to reflect the book value of JIB at the closing of the proposed disposal.
They added that as the proposed disposal was subject to the execution of definitive agreements, further details on the above matter would be announced in due course.
If the price tag of RM654 million stays, Jerneh Asia will get RM523.2 million, while Paramount will get RM130.8 million.
In May, it was reported that Jerneh Asia’s stake in JIB would be sold for RM700 million, pricing JIB at RM875 million.
At RM523.2 million, Jerneh Asia gets RM2.94 cash per share from the deal. This is higher than Jerney Asia’s net asset per share of RM2.59 as at June 30, 2010.
Based on Jerneh Asia’s shareholders’ funds, the proposed deal is valued at 1.07 times price-to-book, which is lower than industry expectations of between 1.3 times and 1.8 times.
The price is also below Jerneh Asia’s last traded price of RM3.28 before it was suspended yesterday. Nevertheless, an analyst said the price tag for Jerneh Asia’s stake in its insurance arm was fair, given that its share price in recent months was buoyed by merger and acquisition (M&A) activities.
Jerneh Asia had been rising steadily this year, and was trading at RM3 levels for several months, underpinned by news that its stake disposal in JIB would be finalised soon. Jerneh Asia traded at RM1 level in 2009.
Jerneh Asia is already in a net cash position prior to divesting its stake in JIB. Apart from its insurance businesses, Jerneh Asia also owns insurance broking and fund management businesses.
In the second quarter (2Q) ended March 31, 2009, Jerneh Asia registered a 29.4% increase in its net profit to RM13.7 million, underpinned by higher revenue. Its first-half net profit more than tripled to RM22.45 million.
Jerneh Asia first announced that it was entering into talks to sell its insurance arm in December 2009. Subsequently, in May this year, Jerneh Asia announced that it had received BNM’s approval to enter into an agreement with a potential buyer for the entire stake in JIB.
Apart from ACE Group, several names had cropped up including Italian insurance outfit Assicurazioni Generali SpA, HSBC and South Korea’s Samsung Fire and Marine Insurance Co.
ACE Group’s parent company, ACE Ltd, is listed on the New York Stock Exchange and a component of the S&P 500 stock index.
In a statement yesterday, ACE Ltd chairman and CEO Evan G Greenberg said the transaction would provide a good strategic fit and complemented its current presence in Malaysia.
“The addition of Jerneh Insurance Berhad will be accretive to ACE’s earnings and book value per share and will meet our return-on-capital hurdle rate,” he said.
ACE INA already has a local insurance outfit via a 51% stake in ACE Synergy Insurance Bhd, a general insurer and re-insurer. The remaining 49% is held by Advance Synergy Capital Bhd.
Greenberg added that the ACE and the sellers expected to execute a definitive agreement shortly, and the transaction was expected to close in the fourth quarter (4Q) this year, subject to seller shareholder approvals and other closing conditions.
Meanwhile, in a separate press release, Jerneh Asia said the proposed stake disposal in JIB would not affect the company’s operations and JIB would continue to conduct its businesses as usual under the Jerneh brand as an independent legal entity.
Written by Yong Yen Nie
This article appeared in The Edge Financial Daily, September 15, 2010.
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