Choy family to fend off any hostile takeover attempt on Federal International

This article first appeared in The Edge Malaysia Weekly, on June 29, 2020 - July 05, 2020.
Wai Hin: If there is an irresistible and credible offer on the table, we are duty-bound as business people to seriously consider it

Wai Hin: If there is an irresistible and credible offer on the table, we are duty-bound as business people to seriously consider it

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FEDERAL International Holdings Bhd (FIHB) managing director Datuk Choy Wai Hin may be a gentleman but by no means is he a pushover.

Amid speculation that FIHB could be a takeover target — for locally listed Muar Ban Lee Group Bhd (MBL) in particular — Wai Hin wanted to put on record that he would defend his family business against any unfriendly or hostile bid.

“Yes, if there is a hostile takeover attempt, we will naturally resist it. We are not at liberty to reveal how we will defend our position in the case of a hostile takeover, but surely at this stage, it is more than a little premature to consider such a scenario,” he tells The Edge via email.

Having said that, Wai Hin remarks: “If there is an irresistible and credible offer on the table, we are duty-bound as business people to seriously consider it.”

Previously known as Federal Furniture Holdings (M) Bhd, FIHB is a furniture manufacturer that has diversified into construction, and is now headed by the 57-year-old Wai Hin, son of Datuk Dr Choy Fook On, the family patriarch and founding chairman of FIHB.

Wai Hin’s mother, Datin Tan Geok Foong, and his younger brother, Datuk Choy Wai Ceong, also sit on the board as executive directors, while his children, Choy Kin Mann and Choy Yuin Yi, are alternate directors to their grandparents.

The Choy family members collectively own 32% of the company that MBL is purportedly interested in.

The Johor-based palm kernel oil expeller and crushing machinery manufacturer is controlled by the Chua family, and had emerged as a substantial shareholder of FIHB on June 19 with a 5.098% direct stake.

This confirmed theedgemarkets.com’s article on June 17 titled “Muar Ban Lee wants a substantial stake in Federal International”.

According to sources, MBL intends to own more than 25% of FIHB. However, it is not clear why MBL is drawn to FIHB as its earnings performance has not been outstanding.

Wai Hin is just as puzzled. “We have no idea why MBL has bought a substantial stake in FIHB, but we would like to think that they did so because they consider it a good buy,” he says.

Prior to that report by theedgemarkets.com, he adds: “We had absolutely no knowledge of Muar Ban Lee. We are not acquainted with the owners.”

Asked whether any representative of MBL had contacted FIHB prior to or after its emergence as a substantial shareholder, Wai Hin says, “No, we have not heard from them. We have no idea why they would be interested in FIHB.”

Nevertheless, he believes the acquisition of a stake in FIHB by MBL is not necessarily bad.

“If any shareholder can add value to the company, it is a good thing indeed,” he notes.

It is interesting to note that MBL was one of a number of minority shareholders that had blocked the proposed privatisation of Cycle & Carriage Bintang Bhd last year.

Meanwhile, it was announced on June 10 that Cocoaland Holdings Bhd co-founder Liew Fook Meng had surfaced as a substantial shareholder of MBL after acquiring a 5.96% stake on June 5. He then raised his stake to 7.58% a few days later.

 

Many options available to Choy family

Going back to FIHB, Wai Hin states that apart from accumulating more shares, there are “many options available” to the Choy family to defend their company against a takeover.

For instance, the Choy family currently owns more than 80% of the company’s class A redeemable convertible preference shares (RCPS) issued in 2016 and 99% of the class B RCPS issued two years later.  They are identified as RCPS A and B to distinguish the two different tranches of RCPS issued on two separate occasions.

“Yes, conversion of the RCPS that we hold is obviously one of our many options. And like I mentioned, we have many other options besides that,” he stresses, but did not elaborate.

The RCPS were issued to the Choy family as part consideration for the acquisition of construction outfit Pembinaan Masteron Sdn Bhd from the family.

The issue price of RCPS A was 76 sen apiece, and RCPS B, 50 sen. There is no cash portion to the conversion of the RCPS into ordinary shares as 7.6 RCPS A can be converted into 1 ordinary share, and 5 for RCPS B.

Wai Hin acknowledges that the Choy family has been receiving dividends from the RCPS, but points out that they would continue to enjoy the dividends even if the RCPS were converted into ordinary shares.

“For the record, FIHB has been consistently declaring 2% dividends on the mother shares for the past two years. So you see, the Choy family will enjoy returns on its holdings of the RCPS, and the mother shares, whichever is the case,” he explains.

Although it is not publicly known who MBL would buy the shares from, it is worth noting that warrant specialist Alan Voon Sze Lin — the second largest shareholder of FIHB — has been divesting his shares in the company.

The latest filing with Bursa Malaysia shows that Voon sold 472,000 shares on June 22 and 23. He currently owns a direct stake of 1.43% and an indirect stake of 4.9%.

FIHB is principally involved in four main business divisions: manufacturing, interior fitout, construction and trading.

The group manufactures modular caseworks, shop fixtures and fittings, as well as furniture for corporate customers. It is worth pointing out that Starbucks Corp accounts for more than 80% of the manufacturing division’s total sales.

FIHB’s net profit more than doubled to RM8.17 million in the financial year ended June 30, 2019, from RM3.8 million a year earlier.

Its share price has jumped 56% year to date, closing at 50 sen last Friday, which values the company at RM54.03 million.

 

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