Pelikan International Corp Bhd is close to acquiring an European-listed firm involved in the stationery business as it steps up the group’s presence in the region, a source tells The Edge.

The firm is one of Pelikan’s strong competitors in Europe. This acquisition comes after Pelikan aborted plans to buy two rival companies in China — one in the hardcopy business and the other in stationery — worth US$200 million this year following the financial crisis.

Talk has emerged that in the latest acquisition, Pelikan is only interested in taking over the stationery business of the firm and is not keen on keeping the latter’s assets. At press time, Pelikan officials did not respond when contacted about the proposed acquisition.

With the acquisition, Pelikan will enhance its position in Europe, However, the cost of this latest acquisition is not known. The possible purchase was noted in an ECM Libra report as a “sizeable” acquisition possibly by year-end.

Analysts are of the view that a strategic purchase is in line with the growth strategy of Pelikan, which derives most of its revenue in Europe, with Germany accounting for half of the business, given its strong brand recognition there.

Furthermore, ECM says the acquisition could potentially double Pelikan’s revenue in FY2010, should it materialise by year-end.

“While we note that the target (of the acquisition) is only operating at break-even levels, we are hopeful of management’s ability to extract synergies and cost savings, given that we understand the operation is in a business similar to Pelikan. Pelikan has been actively consolidating its own subsidiaries in the past two years, and that experience should prove useful this time around,” it adds.

The research house has not factored in the potential earnings from the planned acquisition since details of the deal are still scant. It adds that Pelikan is likely to fund the acquisition via borrowings, given its small cash holdings.

However, ECM says Pelikan’s leverage ratio is relatively high at 0.7 times, hence a cash call is also a possibility and feasible as the stock market has rebounded.

The disposal of the rival’s facilities upon acquisition is also in line with the company’s consolidation effort to avoid excess capacity. Pelikan is believed to have plans to close its China plant in 2H2009 to address excess capacity issues.

Pelikan currently has six production plants after its Bosnia plant ceased operations. The six plants are in Malaysia, Czech Republic, Germany, Mexico, Switzerland and Scotland.

Pelikan has built up its presence in 26 countries following several acquisitions over the last three years and a group-wide reconsolidation that concluded at end-2007. It has steadily obtained majority control in its international subsidiaries, beginning with its Mexican subsidiary, Productos Pelikan SA de CV, in which its stake was raised from 48.97% to 100% in late 2005.

In early 2006, Pelikan successfully completed the purchase of Pelikan businesses in Thailand and Taiwan. A year later, Pelikan finalised the purchase of its subsidiary in Argentina, Pelikan Argentina SA, enabling the group to expand into neighbouring countries like Brazil.

Pelikan established new subsidiaries in Singapore, China, Indonesia and the Middle East. New sales offices have also been opened in other parts of Europe, such as Russia, and it is expanding its business in India too.

In February 2007, Pelikan completed the acquisition of Pelikan Hardcopy — the printer consumables division — which was earlier sold to a US company in 1995.

On the financial front, Pelikan registered a 66% decline in net profit to RM8.02 million for 1Q2009 ended March 31, from RM24.06 million a year earlier. Revenue was 9.6% lower at RM285.41 million.

As at March 31, its borrowings stood at RM374.07 million while cash and shareholders’ fund were RM58.44 million and RM559.59 million respectively.

The company’s CEO Loo Hooi Keat had said its internal target was to achieve a 10% growth in profits in FY2009 ending Dec 31, from RM36.7 million the previous year. He expected sales to remain flat compared with last year’s RM1.29 billion. Loo is the biggest shareholder in the company with a 29.45% stake, followed by Lembaga Tabung Haji at 28.16%.

Pelikan has seen a recovery in demand, as orders started to pick up in April. Another plus point for the company is the ability to enjoy cheaper cost of raw materials during its peak production period that began in March.

Traditionally, the second quarter, which coincides with the “back-to-school” period in Europe, generates nearly half of the company’s annual sales and profits.

Shares in Pelikan closed at RM1.63 last Friday, up one sen for the day.