PETALING JAYA: Capital A Bhd’s proposed business combination with Aetherium Acquisition Corp is generally viewed positively by analysts.

On Wednesday, the aviation group announced that it had entered into a letter of intent with Aetherium for a merger involving the formation of a Cayman Islands entity, Capital A International (CAPI).

CAPI will acquire Brand AA Sdn Bhd and Fleet Consolidated Pte Ltd from Capital A, following its incorporation. Brand AA holds the rights to the AirAsia brand and collects royalty fees from AirAsia Aviation Group Ltd.

On the other hand, Fleet Consolidated handles aircraft procurement and delivery for the aviation group according to an agreed allocation plan.

Under the terms of the deal, Capital A plans to divest all issued and outstanding share capital of Capital A International.

The proposed business combination will see Aetherium, a special-purpose acquisition company (SPAC) listed on Nasdaq, acquiring all the issued and outstanding share capital of CAPI.

This will lead to CAPI’s debut as a new publicly listed company on Nasdaq.

For the purpose of the merger, Aetherium will assign a value of approximately US$1bil to CAPI. The valuation will take into account any additional net cash proceeds received by CAPI.

Capital A surged to an intraday high of 87.5 sen and a low of 82 sen in active trade, before closing at 82.5 sen with 33.3 million shares changing hands yesterday.

MIDF Research said the merger presents an avenue for the group to unlock the value of the AirAsia brand.

It will also provide Capital A with exposure to the US capital markets, which are generally known to be more receptive to financial endeavours of this nature, via the Nasdaq stock exchange.

“This merger is one component of the group’s larger strategy to address its PN17 status,” the research house said in a report yesterday.

MIDF Research noted that a detailed announcement addressing the expected impact of the proposed business deal will be issued when the definitive agreement is signed tentatively in the first quarter of 2024.

“Capital A will no longer generate revenue and potential profits from AirAsia brand royalties. After the proposed business combination is finalised, anticipating a pro forma gain from this merger, it should improve the group’s shareholders’ equity which stood at minus RM10.20bil as of the second quarter of financial year 2023,’’ the research house said.

MIDF Research added, following the completion of the merger, Capital A would have the opportunity for indirect participation in the profits of the disposed business through its ownership of consideration shares and consideration securities.

“The implementation of the proposed business combination depends on the approval of the group’s board of directors and shareholders at an EGM, in addition to obtaining the necessary approval from Bursa Securities for the group to execute its proposed regularisation plan, among other considerations,” the research house said.

MIDF Research, which made no changes to its earnings estimates, maintained a “neutral” call on Capital A with a target price of 90 sen.

Meanwhile, UOB Kay Hian (UOBKH) Research said, given the limited visibility on potential earnings contributions, it remains unsure if the valuation for both assets is reasonable.

“On the other hand, we reckon that the disposal of its consolidated airline operations (including AirAsia Malaysia, AirAsia Thailand, AirAsia Indonesia, and AirAsia Philippines) to sister company AirAsia X Bhd is still on the table, as Capital A still needs the huge disposal gains to offset the negative shareholders’ equity,” the research house said in a report yesterday.

UOBKH Research maintained a “hold” call on Capital A with a target price of 88 sen.