Overview of the share swap transaction:

• FFC has completed the acquisition of Fauji Foundation’s 215mn shares in FPCL via a share-swap at a ratio of 13.49x, implying the issuance of 1 FFC share for every 13.49 FPCL shares held. FFC’s stake has increased from 644mn to 859mn shares, taking its ownership in FPCL to ~100%.

Post acquisition ownership and dilution

• Fauji Foundation’s stake in FFC increased from 43.5% to 44.14% post-transaction following the issuance of new shares. Total outstanding shares rose from 1,423mn to 1,439mn, implying a net dilution of 1.11% for existing shareholders.

Likely merger reserve to be created:

• FPCL’s BVPS as of Jun’24 stands at PKR 31.93, however, this does not account for current year performance, and the actual equity value may be higher. Jun’24 FPCL’s equity value implies a pre-acquisition book value attributable to FFC of PKR 20,566mn, which rises to PKR 27,421mn post-acquisition, depicting consolidation of Fauji Foundation’s stake. FFC issued 16mn new shares at par, amounting to PKR 159mn, with the excess value adjusted through a merger reserve of PKR 6,696mn (relating to FPCL transaction only).

Earnings and dividend impact:

• On a pre-acquisition basis, FFC’s share of FPCL dividend income is estimated at PKR 966mn in CY26 and PKR 1,610mn in CY27, translating into after-tax EPS of PKR 0.57 and PKR 0.95, respectively.
• Post-acquisition, dividend income attributable to FFC is projected at PKR 1,288mn in CY26 and PKR 2,147mn in CY27, equivalent to after-tax EPS of PKR 0.76 and PKR 1.27. Assuming no withholding tax (given FPCL is now a wholly owned subsidiary), this rises to PKR 0.90/share in CY26 and PKR 1.49/share in CY27.
• FPCL is expected to generate an annual ROE of ~PKR 1.8–1.9bn in CY26–CY27, based on our estimates.

Courtesy – AHL Research