This Company Needs a Particular Acquisition to Succeed – But Will It Go Through?

dealIn recent months, there have been a slew of mergers and acquisitions (M&A) going on in Singapore. Besides the consolidation going on with real estate companies such as Hotel Properties (SGX: H15), CapitaMalls Asia (SGX: JS8) and Singapore Land (SGX: S30), there are also a chain of reverse takeovers with the one involving JK Tech Holdings (SGX: 5TS) being an example.

However, there’s one particular deal that has been dragged on for some time now and there’s still no indication of it being completed anytime soon.

The deal in question is that of Global Yellow Pages  (SGX: Y07) planned acquisition of global coffee chain Gloria Jean’s Coffees. The proposed acquisition, which was first announced in December 2013, would see Global Yellow Pages buy over all the intellectual properties, global supply chain operations, and master franchisor businesses of Gloria Jean’s Coffees. When the deal was first announced, it was scheduled to be completed by this March.

With Global Yellow Pages’ main classified-directory and internet-related businesses failing to perform (the company’s operating income has fallen from S$22.6 million in the financial year ended March 2010 to just S$2.51 million in the last 12 months), the company is looking at ways to save itself.

Gloria Jean’s Coffees is a global specialty coffee retailer with most of its namesake stores located in Australia. The company also runs another specialty coffee chain named It’s A Grind that has a focus on the USA, particularly in the state of California. If the acquisition is successful, it would mean a totally new business focus for Global Yellow Pages; given the state of its existing businesses, this might be the best option for the company. Global Yellow Pages had planned to purchase Gloria Jean’s Coffees for S$40.7 million through the issuance of 116.36 million new ordinary shares of itself at an issue price of S$0.07 each.

But just this morning, Global Yellow Pages announced that there are still unresolved terms with Gloria Jean’s Coffees in its deal-proposal. Now with the share price of Global Yellow Pages falling a fair bit below S$0.07 to S$0.056 currently, the company might need to sweeten the deal for Gloria Jean’s Coffees to make it attractive for the latter.

Unfortunately, that might mean greater dilution for Global Yellow Pages’ existing shareholders. For some perspective, Global Yellow Pages had 681.75 million existing shares as of 31 March 2014; the number of shares to be issued as per the initial plan for the acquisition is certainly not trivial.

Foolish Summary

How the deal will eventually play out is yet to be seen although Global Yellow Pages had commented that it “still expects Completion [of the deal to happen” in this morning’s announcement. In any case, management would still need to act fast with its current businesses in trouble.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.