Saturday 16 September 2017

Dilmah to consolidate with MJF Teas by the issue of new shares to parent

Dilmah Ceylon Tea Company PLC (previously Ceylon Tea Services PLC) has announced a private placement of its shares with its parent, MJF Teas (Private) Ltd. (MJFT) under which the businesses of the two companies, both engaged in manufacturing and exporting value-added tea bags, will be consolidated.

Under the restructuring for which approval of Dilmah Ceylon shareholders will be sought after that company’s annual general meeting scheduled for Sept. 25, Dilmah will take over the tea export business and related assets of MJFT at a cost of Rs. 442.5 million to be satisfied by the issue of 735,500 ordinary shares of the company to MJFT.

A Dilmah share has been valued at Rs. 600 each for the purpose of this transaction – slightly higher than the current market price of the share on the Colombo Stock Exchange. The 600-rupee price has been determined on the basis of the average traded price of the share from Feb. to July 2017.

MJFT is the controlling shareholder of Dilmah with a stake of 65.38% of the company. This will rise to 66.61% after the private placement of the new shares.

Currently MJFT supplies Russia and other former Soviet States, India and the US while Dilmah supplies the rest of the world.

In a recent circular to shareholders of Dilmah, the company said that "the consolidation of the tea manufacturing and exporting businesses (under Dilmah) will bring numerous benefits to the company" with its revenue and global market share rising significantly as a direct result.

The directors said that the expansion of the customer base across the globe had a potential for increased profits and earnings per share. It was also an opportunity to streamline internal processes of Dilmah which will benefit from economies of scale that will impact positively on the company’s cost base and overall operational efficiency.

Dilmah, which is a closely-held company controlled by Mr. Merril. J. Fernando and his two sons through related parties, will also move from the main board to the Diri Savi Board of the CSE due to the public float liquidity requirements now being enforced.

The new shares will not be entitled to Dilmah’s next dividend due to be formally approved by its shareholders at the forthcoming AGM. But they will qualify for future dividends.

The company is among the higher dividend payers among those quoted on the CSE and shareholders who invested in the company at its initial public offering many years ago has done very well on the share.

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