Large companies are taking advantage of the economic slowdown and the outbreak to restructure their businesses, aiming to prioritise consolidation or mergers and acquisitions (M&A), both locally and abroad.
Funding for the deals depends on a company's financial status, and includes using operating cash flow, bond issuance, bank loans and capital increases.
Recently three large companies in Thailand announced major upcoming deals: Central Retail Corporation (CRC), Charoen Pokphand Foods (CPF) and Thai Union Group (TU).
Suttatip Peerasub, an analyst at Maybank Kim Eng Securities, said CPF reported to the Stock Exchange of Thailand it will consolidate its Chinese swine business between Chia Tai Investment (CTI), the purchaser, and Chia Tai Animal Husbandry Investment Beijing, the vendor.
CTI is a company incorporated in China and an indirect subsidiary of CPF (through CP Pokphand, which is a listed company on the Stock Exchange of Hong Kong).
CTI will pay 131 billion baht by issuing new shares, representing 65% of the enlarged share capital of CTI to the seller.
CPF will use the share swap method instead of cash payment, as the consolidation will happen in the CP Group family.
The reason for the consolidation of the animal food business and swine farm is to strengthen its long-term business interests in China.
A bigger economy of scale will help the group have more bargaining power and it could even become a market leader in the country. CPF should directly benefit from the deal as it expects net profit will increase from the previous target by around 12%.
"All businesses have been impacted by the economic slowdown and Covid-19 outbreak, but this is a good time for M&As and business restructuring as companies can reduce expenditures and cut unprofitable units," Ms Suttatip said.
Wichuda Plangmanee, a research manager at Yuanta Securities Thailand, said CRC also reported to the SET the company plans to acquire COL, the operator of office retail chains OfficeMate and B2S, with a tender offer of 19 baht per share. It then wants to delist COL from the SET.
The deal is worth around 12.2 billion baht and is conditioned on CRC paying in cash.
CRC has not indicated the funding source -- it has cash flow of around 20 billion baht or it can borrow for some of the costs. The company plans to submit its plan at a shareholder meeting in October.
"CRC has an expansion plan based on M&As or takeovers, and in the first half of the year, the company successfully announced a deal overseas," Ms Wichuda said. "Even without Covid-19, the company already planned to diversify its business domestically and overseas, but the crisis has provided more opportunities to buy at lower prices."
TU, Thailand's leading canned seafood exporter, also reported to its shareholders a restructuring of Red Lobster Master Holdings (RLMH), a restaurant subsidiary in the US.
TU invested 49% through its subsidiary Thai Union Investments North America LLC, the new partners of the subsidiary company that replaces GGCOF RL Splitter, LP.
The remaining shareholders are Seafood Alliance at 36% (a Thai business partnership) and Red Lobster Management 15%.
Naree Apisawattakan, vice-president of Phillip Securities, said the lockdown in the US affected RLMH, causing it to close restaurants and lose 600-700 million baht in profits in the second quarter of 2020 as a result.
The company has resumed operations, so revenue and profit are expected to recover starting in the fourth quarter and continue next year if the pandemic situation improves.
"The economic slowdown and the impact from the outbreak hurt many businesses' profits this year, so this is a good time for buyers and to alter business models by restructuring to meet the new trends," Ms Naree said.
