KARACHI: Primerica Inc, a Delaware Corporation has entered into a share purchase agreement with e-TeleQuote Limited to acquire 80 per cent of the shareholding of TRGIL at $600million. The remaining 20 per cent stake will be acquired by Primerica over the next four years. The deal is expected to be done in July as per notices given by both parties to their respective exchange.

Market was expecting valuation of E-TeleQuote in range of $100-700m. The actual deal value ($600m) has stroked at higher range of previous street consensus. The Enterprise Value (EV) of $600m translates into EV/EBITDA and EV/Sales of 10.3x and 3.1x, respectively based on extrapolation of the 1HFY21 sales and EBITDA.

The purchase agreement also includes the potential for contingent consideration of up to $50m to be paid by the acquirer to selling parties in the form of earn out payments of up to $25m in each of 2022 and 2023 subject to meeting certain conditions. These conditions include achieving forecasted EBITDA by the E-TeleQuote.

This development was also highlighted by Zia Chishti in a conference call organized by the Topline Securities that the management of TRG was also considering means other than listing to divest their holding in E-TeleQuote.

Out of the proposed 80 per cent stake, TRGIL (45% owned by TRG Pakistan) is selling its full stake of 70.25 per cent in the target company followed by 9.75 per cent stake by management of e-TeleQuote. Implied equity value of e-TeleQuote in this transaction is expected to be $450m, adjusted for net debt of $150m. The selling parties (TRGIL and management of e-TeleQuote) will get $345m cash (and remaining $15m in subordinated note) which is 80 per cent of total equity value of $450 m.

The analyst estimates that TRGIL will receive cash of $316.125m (or Rs 48bn) from this transaction. Given 45 per cent stake of TRG Pakistan in TRGIL, the impact on TRG will be $142.25m or Rs21.6bn (Rs 40 per share).

In last assets monetization of Afiniti and IBEX, the cash flows were not routed to TRG Pakistan, however TRGIL used those proceeds to retire its debt. A meager amount of $15m was routed to Pakistan. Currently, TRGIL has an outstanding debt of $50m. Adjusting for that debt, TRGIL will have free cash flows of $266m. This can be used for either reinvestment or payout. If TRGIL consider to pays this to shareholder then TRG Pakistan can get dividend of $120m (Rs18bn).

Management proposed few options in latest call with Topline Securities to benefit TRG shareholders after monetization of these assets. These are distribution of cash dividend, buy back of TRG Pakistan shares and specie dividend of other companies (after listing of all companies) to Pakistan shareholders.

Considering taxes efficiency for investors in Pakistan the preference of distribution will be specie dividend, buy back of shares and cash dividend.

The purchase agreement may be terminated under certain customary and limited circumstances at any time prior to the effective time (as defined in the purchase agreement), including by mutual written consent or if the acquisition has not been consummated on or prior to October 1, 2021.


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