TRGIL to sell its full stake in E-telequote
Islamabad: Primerica Inc, a Delaware Corporation has entered into a share purchase agreement with E-Telequote Limited to acquire 80% of the shareholding at an EV of US$600mn.
The remaining 20% stake will be acquired by Primerica over the next four years. The deal is expected to be not before Jul 01, 2021, as per notices given by both parties to their respective exchanges.
The market was expecting a valuation of E-Telequote in the range of US$100-700mn. The actual deal value (US$600mn) has stroked at the higher range of previous street consensus. EV of US$600mn translates into EV/EBITDA and EV/Sales of 10.3x and 3.1x, respectively based on extrapolation of the 1HFY21 sales and EBITDA.
The Purchase Agreement also includes the potential for contingent consideration of up to US$50mn to be paid by the acquirer to selling parties in the form of earnout payments of up to $25mn in each of 2022 and 2023 subject to meeting certain conditions. These conditions include achieving forecasted EBITDA by the E-Telequote.
This development was also highlighted by Mr. Zia Chishti in a conference call organized by Topline Securities that management of TRG was also considering means other than listing to divest their holding in E-Telequote.
Out of the proposed 80% stake, TRGIL (45% owned by TRG Pakistan) is selling its full stake of 70.25% in the target company followed by a 9.75% stake by the management of E-Telequote. The implied Equity value of E-Telequote in this transaction is expected to be US$450mn, adjusted for net debt of ~US$150mn. The selling parties (TRGIL and management of E-Telequote) will get US$345mn cash (and the remaining US$15 in subordinated note) which is 80% of the total equity value of US$450mn.
We estimate that TRGIL will receive cash of US$316.125mn (or Rs48bn) from this transaction. Given the 45% stake of TRG Pakistan (TRG) in TRGIL, the impact on TRG will be US$142.25mn or Rs21.6bn (Rs40/share).
In the monetization of the last asset of Affiniti and IBEX, the cashflows were not routed to TRG Pakistan, however, TRGIL used those proceeds to retire its debt. A meager amount of ~US$15mn was routed to Pakistan. Currently, TRGIL has outstanding debt of US$50mn. Adjusting for that debt, TRGIL will have free cash flows of US$266mn. This can be used for either reinvestment or payout. If TRGIL considers to pays this to shareholders then TRG Pakistan can get a dividend of US$120mn (Rs18bn), translating into a per-share dividend of Rs33.4.
Management proposed few options in the latest call with Topline Securities to benefit TRG shareholders after monetization of these assets. These are (1) distribution of cash dividend, (2) buyback of TRG Pakistan shares, and (3) specie dividend of other companies (after listing of all companies) to Pakistan shareholders. Considering tax efficiency, for investors in Pakistan, the preference of distribution will be following (1) specie dividend, (2) buyback of shares, and (3) cash dividend.
The Purchase Agreement may be terminated under certain customary and limited circumstances at any time prior to the Effective Time (as defined in the Purchase Agreement), including by mutual written consent or if the acquisition has not been consummated on or prior to October 1, 2021.
