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You might recognize some of the brands shown in the image below. There’s even a chance that you enjoy and frequent some of these establishments. These brands belong to the SGX-listed company, RE&S (SGX:1G1). You might not be aware that the share price has jumped 30%, unless you are a shareholder. The reason is that a private equity firm, Southern Capital Group, has offered to buy out RE&S and delist it from the Singapore Exchange. The Offeror has given shareholders two options. The first is to receive S$0.36 per share in cash, and the second is a mix of cash and shares: S$0.33 in cash and 0.083143 shares in the delisted entity. The offer appears attractive, as it is higher than the stock’s highest trading prices and is also 63.6% above the IPO price of S$0.22 from seven years ago. In terms of price multiples, the Offer Price indicates a P/E ratio of 25x. This is reasonable, considering another Japan concept F&B stock, Japan Foods (SGX:5OI), is trading at a P/E of 23x. There has also been a series of delistings for F&B stocks in the past few years. Food court operator was delisted at a P/E of 21x, with shareholders offered the highest ever traded price. , a caterer, saw shareholders being offered the highest traded price too and a P/E of 14x. Taken in totality, this shows that the Offer is quite fair and follows a pattern seen in F&B stock delisting offers. Even the largest shareholders are agreeable to selling most of their stake to the private equity firm. Tatara Hiroshi, the largest shareholder of RE&S, will see his stake of 62.32% dwindle to just 9.9% if the deal is completed. The Offeror and the directors in concert collectively hold 84.1% of the free float, and given that the offer is fair, it seems likely that the delisting will proceed smoothly. This will be a scheme of arrangement, requiring shareholders to vote at a meeting. The date and logistics of the meeting will be announced subsequently. For the Offer to be approved, at least 75% of the votes must be in favor. This means it is an all-or-nothing arrangement: shareholders will only be able to sell their stock at the Offer price if the required approval is obtained. Otherwise, the deal will fall apart. Shareholders who are happy with the Offer and wish to exit earlier can sell their stock in the open market, albeit at a price below the Offer price. The Offeror intends to maintain business as usual, with the current management continuing to run the company even after selling the majority stake. Typically, private equity buyouts target good companies that they believe they can enhance, making them bigger, better, and more valuable over time. Therefore, it is unfortunate that another stock will become unavailable to retail investors following a delisting. There are still several F&B establishment stocks listed on SGX: However, some of these companies may also face delisting risks. The reason is simple: there is little incentive to stay listed and pay listing fees when management does not need to tap capital markets for expansion funds. Instead, they are paying dividends to shareholders. Even if they consider a placement or rights issue, it doesn’t make sense when share prices are low. Additionally, employees may not feel incentivized by stock options if liquidity is low and the stock is hard to sell or remains undervalued. Thus, management would rather buy out minority shareholders and keep the business private. This is why I believe more F&B establishment stocks may face delisting, especially those with lower price multiples and higher dividend yields. READ MORE READ MORE