KUALA LUMPUR (Oct 23): Denko Industrial Corp Bhd is seeking to buy its bigger rival Integrated Manufacturing Solutions Sdn Bhd (IMS) for RM1.19 billion to be satisfied via an allotment of 1.03 billion new shares in Denko at an issue price of RM1.15 per share. The purchase price is 8.9 times Denko's market value of RM133.72 million.
Denko said the proposed acquisition is part of its plastic injection moulding business expansion strategy to grow its revenue and customer base, and to expand its production capacity, which in turn will improve its financial performance.
In a filing with Bursa Malaysia today, Denko said it has entered into a Heads of Agreement (HOA) with Denko major shareholder and and executive director cum chairman Datuk Seri Foo Chee Juan and Datuk Fong Chiu Wan, who is a person connected with Foo, for the proposed acquisition of 6.2 million shares in IMS.
IMS is a plastic injection moulding company, serving the electrical and electronic industry.
In view that the proposed acquisition is a related party transaction, Denko said an independent adviser will be appointed for the proposed acquisition prior to the execution of the definitive agreement to advise non-interested shareholders and directors of Denko on the fairness and reasonableness of the deal.
Denko noted that the issue price of RM1.15 per share represents a 9.5% discount to the five-day volume weighted average market price (VWAP) of Denko shares up to Oct 20, being the last trading day immediately preceding the date of the HOA.
It added that the issuance of consideration shares for the proposed acquisition will strengthen Denko Group’s financial condition as it will have a larger share capital base to commensurate with the group’s enlarged plastic injection moulding business activities and create substantial headroom for the group to incur borrowings to fund its current and future business activities. "It also enables Denko to conserve cash and save on interest payment obligations as opposed to being settled via cash and bank borrowings."
"The parties will use their best endeavours and efforts to negotiate in good faith and execute the definitive agreement within 45 days following the date of the HOA, or such further extended date as the parties may mutually agree upon.
"Denko will (then) within a period of 45 days following the execution of the definitive agreement embark on and complete a due diligence," it added.
During the financial year ended March 31, 2017, IMS Group, which has been in operations for more than 20 years, recorded a net profit of RM79.13 million on revenue of RM1.81 billion.
Denko is also proposing to undertake a private placement of up to 10% of the existing total number of issued shares to independent third party investor(s) to be identified at a later stage. The issue price of the placement shares will also be determined and fixed at a later date.
For illustrative purposes, the group is expected to raise gross proceeds of up to RM12.01 million from the proposed exercise assuming that 10.45 million placement shares are placed out at an issue price of RM1.15 per placement share, representing a 9.5% discount to the five-day VWAP of Denko shares up of RM1.2707.
The proceeds are expected to provide additional working capital and funds for capital expenditure to Denko Group for its business operations and at the same time increase the flexibility of the group’s cash flow management.
"Barring any unforeseen circumstances and subject to all relevant approvals being obtained from the relevant authorities and/or parties, the proposed private placement is expected to be completed in the first quarter of 2018," said Denko.
Trading in Denko shares has been suspended since last Friday pending the announcement, and will resume trading at 9am tomorrow. The counter last closed at RM1.28.