Why Investors dump QSR shares?

QSR Brands Bhd (9415) and its biggest shareholder, Kulim (M) Bhd, took a beating in the stock market a day after indicating they had no immediate plans to sell their lucrative fast-food businesses.

Disappointed investors, who had chased the shares to new highs in recent weeks on expectations that there would be a takeover offer they could profit from, dumped the shares after the companies shot down two takeover offers for QSR at RM6.70 a share.

QSR's shares, which rose to a record RM6.26 on Monday before being suspended mid-afternoon for the announcement, fell as much as 10 per cent to RM5.63 yesterday, before gaining some ground to close at RM5.93.

It was the day's third biggest loser in the stock market.

Kulim fell as much as 3 per cent to RM11.70, before closing higher at RM12.14.
QSR's subsidiary, KFC Holdings (Malaysia) Bhd (KFCH), the group's most prized and coveted asset, fell by 1.5 per cent to RM3.88.

Kulim, which owns 58 per cent of QSR, on Monday rejected an offer for the latter by US private equity firm Carlyle Group.

QSR had, on the same day, turned down a matching offer from businessman Tan Sri Halim Saad and partners.

Halim's private vehicle, Idaman Saga Sdn Bhd, brought in KUB Malaysia Bhd (owner of the A&W fast-food franchise in Malaysia and Thailand) and US private equity fund CVC Partners Asia III Ltd to make that offer, beating Idaman's earlier solo bid of RM5.60 a share.

Kulim and QSR, both ultimately owned by Johor's investment arm Johor Corp (JCorp), said they could realise more value over the long term if the companies remained within the group.

"We believe this statement indicates that Kulim was never in the market to sell QSR in the first place and that the offers to acquire QSR were completely unsolicited," RHB Research said in a report yesterday.

It agreed that QSR could be worth more in the longer term, given KFCH's foray into India and the potential opportunities for growth there.

Analysts earlier thought Kulim might have been pressured by debt-ridden JCorp to sell its stake in QSR.

JCorp has RM3.6 billion of debts, mostly in Islamic bonds which mature on July 31 2012.

RHB noted that if Kulim had accepted either offer, JCorp would ultimately have received just RM400 million to RM500 million, which is low relative to the debts it has to repay.

"We gather from (Kulim's) management that QSR and KFCH will remain within JCorp, at least for now, a decision that we believe was swayed by the growth potential in India," CIMB Research said in a note to clients yesterday.

Meanwhile, the fact that a bidding war happened at all is positive for QSR.

It helped it gain international exposure and bodes well should it decide to sell later.

The fact that two groups were willing to pay top dollar for QSR speaks volumes for its value. Both the bids valued the company at RM1.94 billion, or 20 times forward earnings. - By Adeline Paul Raj