|At the end of the day, the shareholders will decide. - Photo by Mohd Izwan|
TEN months have passed and there has been little progress on the Employees Provident Fund’s (EPF) plan to take over Kian Joo Can Factory Bhd’s aluminium can manufacturing business for RM1.47 billion in cash.
But EPF CEO Datuk Shahril Ridza Ridzuan is still keen. Not just that, he acknowledges that the provident fund is on the lookout for similar acquisitions that can generate a steady income stream to bolster its dividend payment capability.
“There has been a legal challenge. We’re waiting to see how that goes in court and then we’ll see how to proceed,” he tells The Edge. “If it proceeds in favour of the acquiring parties, then we will carry on. If it proceeds against the acquiring parties, then we’ll look at it again to see if we want to proceed.
“Kian Joo is a good company and we’ve been shareholders for a long time. Nice cash flow, good dividend stream, so that’s why we think it is an ideal deal. Like KFC [Holdings Bhd] and PLUS [Bhd], it suits our profile to do a long-term investment.”
Shahril points out that Kian Joo’s operations and fundamentals have not been affected by the shareholder feud.
In November 2013, the EPF, together with Kian Joo chief operating officer Chee Kay Leong, formed an investment vehicle, Aspire Insight Sdn Bhd, to acquire Kian Joo’s entire assets and liabilities for RM1.47 billion or RM3.30 per share.
Subsequent to the takeover, Aspire would be required to make a mandatory general offer for Kian Joo’s 54.83%-owned subsidiary Box-Pak (M) Bhd.
But the takeover bid has not been smooth going, drawing criticism since the beginning, and is currently embroiled in a suit.
In fact, Kian Joo’s share price has slipped below the RM3.30 offer price, given the opposition against the proposed takeover. The stock has shed 13% over the past five months, dropping from RM3.41 apiece in early May to RM2.97 last Thursday.
The share price of Can-One Bhd — the single largest shareholder of Kian Joo with a 32.9% stake — has taken a beating, falling from this year’s peak of RM3.50 in January to RM2.44 last Thursday. Can-One is perceived to be the biggest beneficiary of the proposed divestment as the sale proceeds would be returned to shareholders. The cash would come in handy to pare its heavy borrowings. Furthermore, the offer price is double the RM1.65 apiece Can-One had paid the See family for its stake in 2007.
Aspire’s bid has been stalled because Kian Joo executive director Datuk Anthony See Teow Guan filed an injunction to challenge the takeover offer, which observers deem unattractive given that it would cost more than RM1.47 billion to set up a similar-sized can manufacturing business.
See is also trying stop Kian Joo managing director Yeoh Jin Hoe — the controlling shareholder of Can-One with a 34.02% stake — from voting at Kian Joo shareholders’ meeting to scuttle Aspire’s bid.
Yeoh is alleged to be a related party to the acquisition as the EPF’s partner, Chee, worked with Can-One for more than 30 years and had only resigned as chief operating officer a few days before the takeover attempt.
Asked to comment on views that RM3.30 per share is too low, Shahril says, “At the end of the day, the shareholders will decide. We’re at the stage where basically the legal challenge prevents us to even offer that (RM3.30) to the shareholders.”
See, who is seen to be suing for a better buyout price, only had a 1.49% direct stake in Kian Joo as at April 16, 2014. However, the See family is believed to control more than 15% of Kian Joo.
A decision on Aspire’s bid to strike out the suit may come on Oct 29, the hearing date at the Kuala Lumpur High Court, according to a statement by Kian Joo to Bursa Malaysia last Thursday.
In terms of financial performance, Kian Joo did not fare well in the first half of the current financial year. The can maker saw a 4.4% rise in revenue to RM650.4 million for the six-month period ended June 30, but its profit fell 24% to RM47. 4 million.
Its paper packaging unit, Box-Pak, saw an earnings contraction too. Net profit declined sharply to RM2.18 million for the first half ended June 30, from RM7.33 million in the previous corresponding period. Revenue rose 22% to RM166.47 million but cost of sales jumped 26.6%.
Pending the court’s decision, Kian Joo and Aspire have agreed to extend the date on which all conditions precedent to the proposed business sale agreement should be fulfilled from Sept 23, 2014, to March 23, 2015. Bursa also extended the deadline for the parties to submit a draft circular to shareholders on the proposal until Nov 23. This circular can only be filed with the High Court’s blessings.
This article first appeared in The Edge Malaysia Weekly, on September 29 - October 5, 2014.