KUALA LUMPUR (Nov 21): Plastic injection mold manufacturer Denko Industrial Corp Bhd has inked a conditional share sale agreement (SSA) with its largest shareholder and executive chairman Datuk Seri Foo Chee Juan and a person connected to him, to buy rival Integrated Manufacturing Solutions Sdn Bhd (IMS) for RM1.19 billion.
The SSA follows a heads of agreement (HoA) inked on Oct 23 between Denko as the buyer and Foo and Datuk Fong Chiu Wan, both co-owners of IMS, said Denko in a filing today.
The related party transaction, said Denko, will be satisfied via the issuance of 107 million new shares and 925.1 million rights of allotment of new Denko shares at RM1.15 apiece.
The price per share is at a 9.5% discount to the volume-weighted average market price of Denko shares for the five-day period ended Oct 20, 2017 of RM1.2707 per share.
The purchase consideration is based on a 15-times multiple of IMS's after-tax profit for its financial year ended March 31, 2017 (FY17). "The acquisition PE (price-to-earnings) multiple represents a discount of 12.28% to the simple average PE multiple of the comparable companies," said Denko.
IMS made RM79.13 million in profit after tax for FY17, on the back of RM1.81 billion in revenue.
Concurrently, Foo's 99.99%-owned Oregon Technology Sdn Bhd — which holds a 50.22% stake in Denko and which will be designated by Foo and Fong to receive part of their shares and rights of allotment under the IMS acquisition — will place out up to 232 million Denko shares to third party investors to be identified.
The proposed placement is to ensure Denko complies with the public spread requirement following the acquisition. The two exercises will see Denko's public shareholding spread reduced to 25.08% from 49.78% now.
Foo emerged as the largest shareholder in Denko via Oregon Tech following the latter's takeover offer for Denko in February at 55 sen a share.
Post-acquisition, post-placement and upon exercise of the rights of allotment, Oregon Tech's stake in Denko will be trimmed to 36.38%, while Foo will have 42.37% — of which 5.57% will be directly held — and Fong will have 32.97%.
On the same day, Denko announced that it returned to black in the second quarter ended Sept 30, 2017 (2QFY18) with a net profit of RM269,000, as opposed to a net loss of RM18,000 a year ago, as manufacturing contribution improved as its tooling sub-segment suffered lower losses and Indonesian operations booked stronger gross profit. Revenue strengthened 28% to RM28.95 million from RM22.7 million.
However, it is still loss-making in the first half of FY18, with a net loss of RM1.96 million from RM443,000 a year ago, though revenue strengthened to RM56.79 million from RM46.71 million. In its financial year ended March 31, 2017, the company booked a net loss of RM11.39 million, from RM2.99 million in net profit in FY16, despite revenue rising 9.54% on-year to RM101.6 million from RM92.75 million.
Trading of Denko shares has been voluntarily suspended from 4.25pm today pending the announcement. Trading will resume at 9am tomorrow. The counter last closed unchanged at RM1.34 for a market capitalisation of RM145.59 million.