KKR aims to acquire Singapore's MMI Holdings

KKR makes a play to delist the precision engineering company, valuing the business at $660 million. The price disappoints MMI shareholders.
Private equity firm KKR announced on April 5 that it plans to acquire SingaporeÆs MMI Holdings, a precision engineering firm which makes parts for computer hard-drive manufacturers, valuing MMI at S$1 billion ($660 million). Shareholders disappointed by the valuation pushed MMI's shares down by 4%.

The acquisition and subsequent delisting are being effected through a scheme of arrangement. To go through, it requires 75% of MMI shareholders by value to approve the deal at a specially convened meeting. MMI founders, Teh Bong Lim and Tan Choo Pie, and some others have committed to vote their shares in favour of the KKR offer taking total acceptances on hand for KKR to 29.5%. However, KKR intends to retain Lim, Pie and other key managers post acquisition and announced that towards this end it was finalising details of a stock option plan to distribute ownership.

KKR is offering S$1.65 a share. MMI shareholders were disappointed by the offer and the company's shares fell about 4% to S$1.60 on Monday, April 9. The offer price is also below the target price set by some analysts who cover MMI. At S$1.65, the price represents a 51.3% to the 12-month volume weighted average price and a 16.2% premium to the price on February 8, the last trading day before MMI announced it had received an expression of interest for the company. It represents a price-to-earnings multiple of 12.3 times unaudited profit figures for the 12 months ended December 31, 2006.

MMI was founded in 1989 and listed on the Singapore Exchange in 1997. It employs 10,000 people at its 13 manufacturing facilities across locations in Asia including Singapore, Malaysia, Thailand and China.

The deal is the latest in a series of private equity deals in the technology sector in which financial sponsors delist the companies they acquire to be able to restructure and more effectively extract value out of the investee company.

The announcement on April 5 coincided with another announcement by Teh Bong Lim, who is managing director of MMI, that the company had signed a term sheet to acquire an 85% stake in a Singapore incorporated company engaged in precision machining of aerospace components. The target has plants in Singapore and Thailand.

KKR was a relatively late entrant among private equity players who set up shop in Asia. But since its entry to the region in late 2005, KKR has gained traction very quickly and has already closed five deals: the $2.66 billion buy-out of Avaga Technologies in Singapore; the buy-out of FlextronicsÆ India-based software business for about $900 million; the $1.35 billion buy-out of BIS Cleanaway in Australia; and a $3.1 billion joint venture with Seven Network, also in Australia.

In August 2006, a KKR-led consortium, which included Carlyle, TPG, CVC Asia Pacific, Bain and Blackstone, made an unsolicited approach to acquire Coles Group, AustraliaÆs second largest retailer. Its final bid of A$18.2 billion ($14.9 billion) was rejected by the ColesÆ board in October. The Coles board decided earlier this year to put the retailer into play after a profit warning and speculation is rife that KKR will top an A$19.7 billion bid by Wesfarmers, who is currently leading the pack for the asset. The Wesfarmers bid is backed by Macquarie, Pacific Equity Partners and Permira. The Coles deal, when it closes, will represent AustraliaÆs largest takeover to date.

On the MMI deal, KKR is being advised by Credit Suisse and MMI by Macquarie.
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