This article first appeared in The Edge Financial Daily on December 15, 2017

KUALA LUMPUR: EA Holdings Bhd is diversifying into the packaged food business by buying a 90% stake in Sunland Volonte Agency Sdn Bhd for RM78.75 million, which will be satisfied via the issuance of 1.59 billion new shares at an issue price of four sen per share and RM15 million cash.

In a filing with Bursa Malaysia yesterday, EA Holdings said it is acquiring 225,000 shares in Sunland from Datuk Cheong Soo Han, Law Kum Wah, Chong Nyet Fan and Goh Swee Sim.

Incorporated in 1985, Sunland is principally engaged in the selling and distribution of packaged drinks, snacks and related products which include fruit juices, premium biscuits, canned fruits, jams and other spreads, olive oil, vinegar and pasta.

At present, Sunland is the agent and distributor in Malaysia to brands such as Basso, Baronia, SICA or SICA Tomatoes, Loreto, Trucillo, Bonomi, Kronos, and D’Amino.

Cheong currently owns 60% of Sunland’s shares, while Law, who is the company’s chief executive officer (CEO), holds a 20% stake. Goh, who is also Sunland’s chief operating officer, and Nyet Fan each owned a 10% stake.

However, Law will only sell half of his shareholding in Sunland and retain the remaining 10%.

Subsequent to the acquisition, Cheong will emerge as the single largest shareholder in EA Holdings with a 20.9% stake, while Law, Goh and Nyet Fan will each own a 3.5% stake in the listed entity.

EA Holdings said the acquisition will not trigger a mandatory takeover offer as the combined shareholding of the four individuals will be 31.4%, and will be diluted to as low as 26% if all of the group’s warrants were to be exercised by warrant holders.

EA Holdings’ current largest shareholder Chong Mui Fun’s shareholding will be diluted to 13.7% upon completion of the acquisition, from 20% currently, while its CEO Mohammad Sobri Saad will see his shareholding cut to 8.4%, from 12.3% as at Dec 4 this year.

Cheong and the other three vendors have agreed to guarantee that Sunland’s aggregate net profit for the financial years ended Jan 31, 2019 and 2020 will not total less than RM14 million.

Sunland’s net profit for financial year 2017 (FY17) fell 10.27% to RM2.83 million, from RM3.16 million in FY16, while revenue also declined 3.89% to RM17.93 million from RM18.66 million.

EA Holdings is also proposing to undertake a bonus issue of up to 1.59 billion free warrants on the basis of five warrants for every 16 existing shares.

At an indicative exercise price of 4 sen, these warrants would be able to raise as much as RM63.85 million, which will be utilised for working capital.