This article first appeared in The Edge Financial Daily, on December 4, 2015.

KUALA LUMPUR: Loss-making timber processing company Tekala Corp Bhd has proposed a series of corporate exercises, including a reverse takeover of Tekala by WMG Holdings Sdn Bhd (WMG), with the acquisition of five property assets worth RM513 million from Syarikat Kretam (Far East) Holdings Sdn Bhd, and a diversification into property development.

Tekala announced that WMG, a newly incorporated special purpose vehicle, and Syarikat Kretam, had entered into several conditional share sale agreements yesterday to effect the RTO.

These agreements involved the proposed acquisition by WMG from Syarikat Kretam of the entire equity interest in target companies, Ritai Sdn Bhd (Ritai), and Cosmopolitan Co Sdn Bhd (Cosmopolitan), as well as the remainder 32% equity interest in Syarikat Far East Development Sdn Bhd (SFED) not held by Ritai, the remainder 10% in Velda Development Sdn Bhd (Velda) not held by Ritai, and the remainder 4% in Wah Mie Realty Sdn Bhd (Wah Mie) not already in Ritai’s hands, for an aggregate purchase consideration of RM513 million.

After the proposed acquisitions, WMG will undertake a share exchange involving the 139.98 million Tekala shares (its entire issued and paid-up share capital) with 186.17 million new WMG shares, on the basis of 133 new WMG shares for every 100 existing Tekala shares held on an entitlement date to be determined later.

The consideration for the acquisitions will be satisfied via an issuance of new WMG securities, namely 240 million new WMG shares at an issue price of 50 sen each, 180 million new redeemable convertible preference shares (RCPS) at RM1 each, and 213 million new irredeemable convertible preference shares (ICPS) at an issue price of RM1.

On completion of the proposals, Tekala’s listing status will be transferred to WMG and Tekala will become a wholly-owned subsidiary of WMG.

The Sandakan-based Syarikat Kretam will also emerge as the controlling shareholder of Tekala, via WMG, with a 56.3% stake in WMG.

Tekala’s non-independent non-executive chairman Datuk Seri Panglima Quek Chiow Yong, managing director or CEO Lim Ted Hing, as well as executive directors Quek Siew Hau, Chan Ka Tsung, Seah Sen Onn @ David Seah and Fong Kin Wui are all directors and substantial shareholders of Syarikat Kretam. They will remain as the directors of WMG.

The board of directors opined that the RTO presents Tekala an opportunity to participate in property development, which is deemned viable and profitable.

Tekala fell 1.61% or 0.5 sen to 30.5 sen yesterday, with a market capitalisation of RM43.4 million.