MBM has announced a conditional takeover offer to privatize Hirotako (Hiro) in a deal estimated at RM412.5m, to be funded by mostly borrowings. The offer is priced at a 10% premium to Hiro’s current share price but at a 40% premium to average sector PER multiples. While synergistic benefits on either horizontal and vertical integration are unlikely to trigger significant cost cutting, we think the key to the purchase is the potential of expanding Hiro’s customer base. The net EPS accretion for FY12-FY13 would be 9%-16% upon consolidation. We are positive if this deal materialises. Maintain BUY with our Fair value unchanged at RM3.35.
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