This article first appeared in The Edge Malaysia Weekly on October 28, 2019 - November 3, 2019

APEX Equity Holdings Bhd is likely to convene another extraordinary general meeting (EGM) next month to again table a resolution on the merger between its Kajang-based stockbroking unit JF Apex Securities Bhd and Mercury Securities Sdn Bhd.

A resolution on the merger had been tabled at its EGM on June 19,  and  54.8% of its shareholders voted in favour.

However, the resolution was invalidated by the High Court on Sept 18, following the intervention of Pinerains Sdn Bhd — a minority shareholder of Apex Equity with a 4.17% stake — against a vesting order application by Apex Equity to proceed with the merger.

The decision by High Court judge Azizul Azmi Adnan was made on the grounds that the circular to shareholders on the proposed merger was opaque.

Although Apex Equity does not agree with the decision, the company has decided not to appeal but, instead, will issue a fresh circular and proceed with a second EGM next month.

“All things considered, the board of Apex Equity decided to seek shareholders’ approval at a reconvened EGM rather than appealing the decision of the High Court setting aside the resolutions,” Apex non-independent non-executive director Datuk Azizan Abd Rahman tells The Edge.

Under the business merger agreement signed last year, Apex Equity will take over Mercury Securities’ stockbroking, corporate advisory and other related businesses for RM140 million, transferring the businesses to JF Apex.

Apex Equity was to pay RM48 million in cash and the remaining RM92 million via the issuance of 100 million new Apex shares to Mercury Securities, which is set to emerge as the single largest shareholder of Apex, owning 30.99% equity interest in the merged entity.

In September, the High Court invalidated the resolution as it felt the circular lacked clarity, specifically relating to the use of the word “immovable” within the definition of assets that may give the impression that Mercury Securities’ landed properties were involved in the merger. To be clear, the assets to be transferred by Mercury Securities in the merger do not include landed property.

It is learnt that “immovable assets” in the circular involve partitions and built-ins in Mercury Securities’ seven branches, which will now be a part of JF Apex’s network of branches.

JF Apex Securities Bhd CEO and executive director Leong Sek Hoe reiterates that no landed property will be acquired from Mercury Securities as it is not fetching cost-effective income.

“Commercially, holding landed properties by a stockbroking company is not an effective use of its capital. Due to prevailing capital adequacy rules prescribed by Bursa Malaysia, the value of landed properties is stripped out in the calculation of the capital adequacy ratio,” he says.

In other words, only assets that are necessary to generate revenue for Mercury Securities’ stockbroking, corporate advisory and other related businesses would be transferred in the merger.

Apex: Mercury a perfect fit

To recap, at Apex’s EGM on June 19, the merger resolution was passed with shareholders holding 54.8%, or 100.85 million shares, voting in favour while the remaining 45.2%, with 83.19 million shares, voted against.

ACE Investment Bank Ltd and the Chan family are believed to have voted for the merger, whereas Lim Siew Kim — daughter of the late Tan Sri Lim Goh Tong — and her alleged associates are believed to have voted against the deal.

When contacted by The Edge, Lim Beng Guan, said to be one of her associates, declined to comment.

As for the board of directors of Apex Equity and the management of JF Apex, they seem to have taken the stance that the merger with Mercury Securities is still in the best interest of the group.

Azizan believes Mercury Securities is a perfect fit for Apex Equity, given its comparable size, consistent earning record and revenue derived mainly from a diversified base from traditional trade execution income and fee-based activities.

“Equally important, Mercury Securities brings along its proven management and entrepreneurial drive. The delay of the merger creates uncertainties about the future direction of Apex Equity amid an already challenging environment in Malaysia,” he says.

Azizan also points out that Apex Equity needs new earnings streams to enhance its fee-based earnings to mitigate reliance on interest income from share margin loans.

“There is an urgent need for a fresh infusion of entrepreneurial spirit to reinvigorate the Apex Equity group to be better positioned to compete more effectively in the marketplace,” he says.

Following the death of Apex Equity founder and executive chairman Chan Guan Seng early last year, there has been a leadership vacuum at the group level.

Should the merger go through, veteran stockbroker Chew Sing Guan — owner and managing director of Mercury Securities — will become the CEO, executive director and controller of JF Apex, as approved by the Securities Commission Malaysia.

Under Chew’s leadership, Mercury Securities’ corporate advisory team had been ranked first by Bloomberg for three consecutive years from 2016 to 2018 in mergers and acquisitions by deal count.

Leong says that in addition to Mercury Securities’ customer base and seven branches, JF Apex Securities will be acquiring its capabilities, technical expertise, reputation, as well as the customer relationships of its SC-licensed dealers, remisiers and corporate finance team.

Such “soft” assets are immediately able to generate and contribute to earnings.

“What is pertinent is that Mercury Securities’ stockbroking, corporate advisory and other related businesses to be transferred to JF Apex Securities achieved a profit after tax of RM9.4 million for the 12 months ended July 31, 2018,” he says.

Moreover, as part of RM50 million in net assets that Mercury Securities will transfer, a minimum RM32 million comprise share margin loans granted by Mercury Securities to its clients.

“These share margin loans are fully collateralised by quoted securities, which can be seen as near cash equivalents. JF Apex Securities can immediately derive income upon completion of the merger,” says Leong.

That being said, the fact remains that certain shareholders do not want their shareholdings in Apex Equity to be diluted.

Will the dissenting shareholders, namely Siew Kim and her alleged associates, continue to frustrate the merger should the second EGM succeed?

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