Japan's Aeon eyes CVC's Indonesian retailer Matahari: sources

HONG KONG Fri Jan 25, 2013 4:27am EST

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HONG KONG (Reuters) - Japan's Aeon Co Ltd (8267.T) and a unit of Thailand's Central Group are eyeing a bid for PT Matahari Department Store (LPPF.JK), a CVC-owned retail group in Indonesia for which the private equity firm is seeking as much as $3.5 billion, sources familiar with the matter told Reuters.

CVC's CVC.UL exit from Matahari, one of Indonesia's top department stores, is among the most widely anticipated deals in Indonesia this year, a test case for private equity firms who need to prove they can cash out of Indonesia, which in recent years has seen a rush of private equity inflows.

A sale to a strategic buyer would also continue the trend for increasing M&A volumes in Southeast Asia, which in 2012 more than doubled year-on-year to hit a record $116.8 billion, Thomson Reuters data shows.

Thai outbound deals hit a record $27.2 billion last year, a five-fold rise from 2011, while Japanese companies launched a record $86.8 billion worth of outbound M&A last year, according to Thomson Reuters data.

Reuters reported last October that CVC had hired banks to help sell the 80 percent stake it bought in PT Matahari in 2010 for $790 million. CVC had then teamed up with local Indonesian investment vehicle Matahari Putra Prima TBK (MPP) (MPPA.JK) to buy a combined 98 percent stake in Matahari, in what is still the nation's biggest ever private equity buyout.

Annual economic growth above 6 percent since 2010 has boasted the retail spending power of Indonesia's growing middle class. Supermarkets, hypermarkets and shopping malls are now spread across the country, with mini-markets placed in nearly every Jakarta neighborhood.

Matahari, the country's biggest department store operator, has no major rival in the mid-market, with 110 stores in 50 cities across the archipelago.

Among notable department store rivals, PT Ramayana (RALS.JK) focuses on the lower-income segment, while PT Mitra Adiperkasa (MAPI.JK) aims to tap the high-end market.

The competition in Indonesia's department store sector is not as crowded as in the grocery business, where mini-markets are winning the battle against big supermarkets.

Indonesia's biggest supermarket-chain operator, France's Carrefour (CARR.PA), decided to exit the market late last year when it sold its majority stake worth $673 million to its local partner CT Corp.

EXIT PLANS

London-headquartered CVC and its advisers formulated plans to either pursue a public sale of shares in the company or a sale of the entire business to corporate buyers - a strategy known in banking circles as a dual-track process.

CVC, one of the world's biggest buyout funds with more than 60 invested companies worldwide generating combined annual sales above $130 billion, is hoping a strong exit from Matahari will encourage investors into its new $3 billion Asia buyouts fund.

The interest of Aeon and Central Group comes ahead of a tentative March deadline, after which CVC will pursue a sale of its shares in the open market if no takeover offers emerge.

Aeon denied that the company was pursuing PT Matahari. Central Group also denied that it was pursuing the company.

But sources with direct knowledge of the matter said that Aeon and the Thai company have hired investment banks to advise on a possible offer. As in any auction, Aeon and Central Group may not decide to place a formal bid.

The public market option that CVC is considering is a share placement to institutional investors that could raise up to $1.5 billion, the sources said.

The firm has hired CIMB Bank (CIMB.KL), Morgan Stanley (MS.N) and UBS (UBSN.VX) to manage the share sale, and the three banks are talking to possible cornerstone investors, one of the sources said.

A $1.5 billion share sale would be the biggest stock market event in Indonesia since the $4 billion rights issue for PT Bakrie & Brothers in 2008.

CVC's high valuation expectations mean the public market looks the more likely exit route at the moment, two of the sources said. Sources with direct knowledge said they expect strong interest from institutional investors, who are keen to tap into Indonesia's consumer boom.

"You can't rule out someone coming in and throwing down a big offer, but I'd say it's about 75 percent likely this will go through the public markets," said one source with direct knowledge of the process.

CVC declined comment. Sources declined to be identified as the sale process was confidential.

The asking price of up to $3.5 billion represents price to earnings multiple of about 30 times, one the sources said. In comparison, Asia-Pacific peers on average trade at a P/E of 17.4 times, according to Thomson Reuters data.

In another Southeast Asia deal, CVC is also in exclusive talks to buy an 80 percent stake in SPi Global Holdings, a business outsourcing unit of Philippine Long Distance Telephone Co (TEL.PS), for about $320 million including debt, a source familiar with the matter told Reuters.

CVC is also closing in on a $1.7 billion buyout of the KFC fast food franchises in Malaysia, together with the investment arm of Malaysia's Johor State, Johor Corp JOHOR.UL, and the Employee Provident Fund.

(Additional reporting by Khettiya Jittapong and Saranya Suksomkij in BANGKOK, James Topham in TOKYO, Janeman Latul in JAKARTA and Joyce Lee in SEOUL; Reporting by Stephen Aldred and Denny Thomas; Editing by Michael Flaherty and Alex Richardson)

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