KUALA LUMPUR (Jan 21): Kuantan Flour Mills Bhd (KFM) has proposed a reverse takeover (RTO) of water filtration systems provider NEP Holdings (M) Bhd, whose products are sold under the ‘Diamond’ brand.

In an announcement today, KFM (fundamental: 0.3; valuation: 1) said it has entered into a heads of agreement with NEP’s vendor Lim Chang Huat for a number of proposals to facilitate the RTO, which includes the creation of a new entity (NewCo), and securities exchange between the NewCo and KFM.

Under the securities exchange exercise, KFM’s shareholders will swap each existing shares in KFM with one new NewCo share, and each existing warrants in KFM into one new NewCo warrant.

KFM shareholders are also entitled for an additional 1 new warrant in NewCo for every two existing shares held in KFM.  

Following this, the listing status of KFM will be transferred to NewCo, which will then acquire NEP for a purchase consideration to be determined later.

Nevertheless, the acquisition shall be satisfied by the issuance of such number of new NewCo shares at an issue price of 45 sen each to the vendor, together with new NewCo warrants on the basis of 1 NewCo warrant for every three NewCo shares issued to the vendor.

KFM said the rationale behind the acquisition of NEP was to improve its long-term prospects, as KFM had reported net losses over the past five financial years.

“In view of the declining financial performance of the existing core businesses of the KFM group, the board has been actively searching for suitable business ventures to improve the prospects of the KFM group in the long term.

“The proposed acquisition will provide an opportunity for the existing shareholders and warrant holders of KFM to capitalise on NEP group’s growth potential in the distribution of water filtration system products and stable financial performance,” said the group.

According to KFM’s announcement, NEP posted a net profit of RM17.26 million in the financial year ended June 30, 2013 (FY2013), on revenue of RM133.03 million. Net profits for FY2012 and FY2011 were RM14.98 million and RM12.74 million, respectively.

At the end of the trading session today, KFM closed 1 sen or 2.27% higher at 45 sen, for a market capitalisation of RM29.8 million.

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