Mergers & Acquisitions


Toridoll’s buyout of Tam’s Noodles leaves investors with sour taste

PUBLISHED : Tuesday, 16 May, 2017, 7:50pm
UPDATED : Tuesday, 16 May, 2017, 7:50pm

Toridoll Holdings Corp., Japan’s largest operator of noodle restaurants, took a beating in the stock market as investors shunned the company’s plan to take over the Tam’s Yunnan Rice Noodles chain in Hong Kong.

Shares of the Kobe-based company fell as much as 10 per cent, their biggest intraday decline in seven months, dropping to 2,673 yen on the Tokyo exchange, wiping out 9 billion yen (US$80 million) of market value in a day.

The Japanese company, which owns the Marugame Seimen chain of udon restaurants, said it has signed an agreement to buy 100 per cent of Hong Kong’s Jointed-Heart Catering Holdings, which operates as many as 50 Tam’s Yunnan Rice Noodles outlets in the city.

Toridoll wants to use Tam’s Noodles as a springboard to expand into mainland China, and around Southeast Asia to meet its target of operating 6,000 restaurants by 2025, becoming one of the world’s top 10 restaurant brands, the company’s spokesman said in an earlier interview with the South China Morning Post.

The purchase price wasn’t disclosed, but Japan’s Nikkei reported that Toridoll was likely to pay 15 billion yen (HK$1 billion) for Tam’s.

The price, and the lack of financial details surrounding the takeover unnerved investors, causing them to dump the stock. As many as 2.15 million shares changed hands Tuesday, more than four times the daily average in the past year.

“There is very little information about Tam’s Noodles,” said Nomura Securities’ analyst Ryozo Minagawa, who had been maintaining a “buy” recommendation on the stock since October 25 last year. “Most Japanese have never heard of this Hong Kong noodle chain.”

Toridoll, which is scheduled to meet its investors on Wednesday to explain its takeover, did disclose two years of financial performance by Jointed-Heart.

The Hong Kong company’s net profit rose 26 per cent to HK$9.63 million in the fiscal year ended March 2016, compared with a year earlier.

That’s a good level of profitability, but it’s too early to say if that makes Tam’s Noodles worth the HK$1 billion price tag, said Kingston Securities’ research director Dickie Wong, as the company’s debt and same-store sales growth data are unknown.

“Purchasing 100 per cent stake seems aggressive and dangerous for Toridoll,” said Victor Au, chief operating officer at Delta Asia Securities. “Setting up a venture to step into Chinese mainland market will be a safer way for the company.”

Toridoll, which has been listed since 2006, now operates 890 restaurants in Japan selling ramen, udon, yakitori and pasta, as well as 340 restaurants overseas.

HK$1 billion for Tam’s noodles? Japan’s Toridoll has the appetite

The company has been on a buying spree in pursuing its aggressive global expansion. It opened its first teriyaki restaurant in the Kenyan capital of Nairobi in March 2015 and followed up early last year with an acquisition of Utara 5 Food and Beverage, which operates the Boat Noodle eateries in Malaysia.

The company’s strategy is sometimes “hard to understand,” said Nomura’s Minagawa, citing Toridoll’s 2016 acquisition of cosmetics company Sonoko Corp.

“It exposes the company’s risks in its governance and how it makes a takeover decision, that’s what we worry most,” he said.