Comfort, DelGro merger to create $1b company
(2002-11-22)

Comfort, DelGro merger to create $1b company

By Wong Wei Kong

(SINGAPORE) Comfort Group and DelGro Corp yesterday proposed a merger that will create a billion dollar grouping that is set to dominate the transportation market in Singapore.

The new company (Newco), formed by the merger of Singapore's biggest taxi operator and the largest public bus operator, will have a market capitalisation of over $1 billion, combined sales of $1.56 billion, and pre-tax earnings of $196 million. It will provide a spectrum of transport services ranging from bus and taxi services to leasing and vehicle maintenance and inspections.

Comfort has a fleet of some 11,340 taxis, while DelGro runs 2,872 buses. Comfort is also Singapore's biggest private bus operator with 401 buses, while DelGro has been awarded the operation of the Northeast MRT line and the Sengkang/Punggol light rail system.

The only rival to Newco here, listed SMRT Corp, in comparison, has a market capitalisation of around $930 million, sales of $500 million and pre-tax profits of $88.5 million. It has a smaller fleet of some 600 buses and 2,000 taxis, but operates all the existing MRT lines in Singapore.

Under the merger plan, Newco will be listed, but Comfort and DelGro will be delisted after the transaction is completed.

Comfort's vehicle inspection unit Vicom Ltd and DelGro's bus operating unit SBS Transit will remain listed as separate entities on the Singapore Exchange.

Comfort shareholders will receive about 1.25 Newco shares for every Comfort share, while DelGro shareholders will get around 3.34 Newco shares for each DelGro share.

There are 811.80 million Comfort shares and 302.50 million DelGro shares currently in issue.

Based on the allocation of shares, Newco will have 2.02 billion shares in issue and paid-up capital of $505.5 million, and will be equally held by Comfort and DelGro shareholders.

In a joint statement, Comfort and DelGro said the proposed merger aims to consolidate their transportation businesses to enhance profitability and shareholder value. It will enable Newco to provide better customer service through synergies and greater efficiencies and to increase the size and scale of overseas operations.

Newco will also be better placed to face the increased competition from the liberalisation of the unscheduled feeder bus services market in Singapore, the statement added.

The merger will result in a stronger balance sheet with shareholders' funds exceeding $1.1 billion, it said.

With a market capitalisation of over $1 billion, Newco should attract a broader shareholder base, wider institutional interest, and more extensive research coverage.

Initial market reception was positive. 'I think it looks like a good deal,' said Kevin Scully, head of NetResearch Asia. 'Comfort is looking to expand overseas and DelGro has large bus and taxi operations in London and China. There are also overlaps in local operations so there should be some synergies and margin expansion.'

The issue, Mr Scully suggests, is more a competition one rather than an equity one.

He pointed out that with the proposed merger, there will effectively be a duopoly operating in the Singapore transport market.

Comfort, DelGro, SBS and Vicom shares were suspended yesterday for the announcement. Comfort shares are likely to react more on the upside than DelGro shares to news of the merger, market players said. DelGro shares have already seen a run-up to $2.02 before their suspension from their Monday close of $1.90, while Comfort shares have remained flat at 77 cents. SBS last traded at $1.34, while Vicom was quoted at 64.5 cents before being suspended. The proposed merger needs the nod of Comfort and DelGro shareholders, as well as court approval. The two companies have also made a submission to the Securities Industry Council for confirmation that they do not need to make a general offer for SBS and Vicom under the 'chain principle' of the takeover code.

  
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