Transformation at Distilleries as Melstacorp takes over parent company
View(s):Melstacorp, a fully owned subsidiary of the iconic Distilleries Company of Sri Lanka (Distilleries), will now be the ultimate holding company of the powerful alcohol distiller that will be made under a share swap agreement, Distilleries has said in a stock market filing. Following this 180 degree arrangement, the current shareholders of Distilleries will be issued four shares of Melstacorp in exchange for every one share of Distilleries held. The company has requested regulator’s approval for a listing of Melstacorp shares in the Colombo Stock Exchange (CSE). Also Distilleries, with the objective of continuing to be a listed company, is expected to issue more shares up to 20 per cent of the current quantity, in an effort to increase the public float.
The shareholders of Melstacorp will be given preferential allotment over third party applicants at this share issue. Analysts say that this would significantly re-rate the Distilleries share as investors will be able to zoom in their focus on Distilleries key cash-cow of the conglomerate. “The share has been trading at a marked discount to the ‘Sum of The Parts’ value and we believe this would be the key re-rating catalyst,” a Bartleet Religare report said. According to this report, current shareholders under the share swap will own stock in subsidiaries of Melstacorp, including Distilleries. “Distilleries would no longer deserve the visibility discount it had historically been associated with. To sweeten the deal, the loss-making plantations and telecommunications sectors will now be separated from Distilleries and be directly listed under the Melstacorp group.”
Distilleries, as a separately listed entity, is expected to perform better post arrangement, since plantations and telecommunications sectors will now be separated from Distilleries and come directly under the Melstacorp group, according to the report. Beverage segment’s profits at Distilleries accounted for 102 per cent of the dist group’s bottom line for FY 2016, while diversified segment contributed 10 per cent. “The purchase of new shares of Distilleries once issued would push the investors’ average purchase price down, while the share price is anticipated to gradually move upwards in line with the fundamental growth of the company, thus returning future gains,” the report said. The current demand for the Distilleries shares is to draw preferential allotment on the new shares to be listed.