CVC Said to Seek 44% More for Matahari After Aeon Walks Away

CVC Capital Partners Ltd. may ask equity investors to pay more for PT Matahari Department Store than a tentative bid for the retailer by Aeon Co. that was later retracted, three people with knowledge of the matter said.

Aeon proposed making an offer of about $2.6 billion last month for Matahari, CVC’s biggest investment in Southeast Asia, one of the people said, asking not to be identified because the matter is private. A 40 percent stake may be sold for as much as $1.5 billion in a stock offering, five people with knowledge of the matter said last week, valuing the whole Indonesian company at as much as 44 percent more than the Aeon offer.

Aeon decided to withdraw its non-binding bid, made on Jan. 15, because the $3.5 billion enterprise value sought by CVC for the asset was too high, according to a Feb. 9 letter sent by Aeon to the fund and seen by Bloomberg News.

Japan’s largest retailer indicated in a Feb. 4 meeting that it was unable to meet CVC’s expectations for the price, Masaaki Toyoshima, an executive at Aeon’s business development unit, wrote in the letter. The private equity firm’s asking price was equivalent to 15 times Matahari’s estimated earnings before interest, depreciation and amortization for 2013, he wrote.

CVC is also seeking about $3 billion this year in its fourth Asia fund, a person with knowledge of the matter said. A successful divestment and returning money to earlier investors may help raise those funds.

High Growth

Aeon’s stance hasn’t changed since its Jan. 25 statement, spokesman Tomohiro Itosaka said today. The Japanese company had at that time said it wasn’t considering buying Matahari. An official at CVC in Asia on Feb. 22 declined to comment on the valuations and the fundraising plans.

The British fund, which began investing in Matahari in 2010, is valuing the asset at about 25 times to 30 times its estimated 2013 profit for the stock offering, one of the people said. The price-to-earnings ratio, which exceeds that of most Indonesian retailers, was set at that level because the company’s annualized profit will probably grow more than 40 percent over the next three years, the person said.

Matahari’s valuation is “not that cheap,” said Harry Su, the Jakarta-based head of research at PT Bahana Securities. Salaries and rental expenses account for 60 percent of operating expenses for Matahari, and an increase in minimum wages may put pressure on the company’s profit growth, he said.

Rivals’ Valuations

Earnings on a per-share basis at PT Ramayana Lestari Sentosa, the biggest Indonesian department store by floor space, are forecast to grow at least 14 percent annually for two years, according to estimates compiled by Bloomberg. PT Mitra Adiperkasa, which operates Starbucks Corp. and Domino’s Pizza Inc. outlets across Indonesia, will expand by about 25 percent, the data show.

Ramayana is trading at about 17.5 times estimated earnings for this year, while Mitra is trading at 21.7 times, according to data compiled by Bloomberg.

Robinson Department Store Pcl, based in Bangkok, is forecast to grow 27 percent this year, the data show. The stock is trading at about 30.7 times estimated profit.

(Updates with analyst’s comments in eighth paragraph.)
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