Frankly Speaking: Top Glove’s costly acquisition

This article first appeared in The Edge Malaysia Weekly, on July 16, 2018 - July 22, 2018.
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The sharp drop in the share price of Top Glove Corp Bhd last Monday wiped out some RM3.8 billion of the glove maker’s market capitalisation.

The loss, reflecting the market’s reaction to news of Top Glove’s legal action against Adventa Capital Ptd Ltd, was five times the impairment that could potentially arise from the case.

Shareholders cannot be blamed for dumping Top Glove shares because the case raises many questions, chief among which is whether there was proper due diligence in the RM1.37 billion acquisition of surgical glove maker Aspion Sdn Bhd from Adventa Capital, which was completed within four months in April this year.

The allegations Top Glove has made in the lawsuit against Adventa Capital, Low Chin Guan, Wong Chin Toh and ACPL Sdn Bhd sound serious and damaging. Its July 6 announcement to the stock exchange, saying it is claiming RM714.86 million from Adventa Capital and others, contained words such as “conspiracy to defraud” and “fraudulent misrepresentations”.

Was the management of the world’s largest glove maker overly enthusiastic, hasty or careless in completing the acquisition, perhaps leading to oversight? Were mistakes made in the acquisition process?

In any case, the matter is now before the courts but whatever the outcome, the lesson from this is that investors do not like surprises. And they show it by dumping shares. In Top Glove’s case, it went limit down on the first day of trading after the announcement on the litigation was made.

Indeed, the valuation wiped out is more than double the acquisition price for Aspion.

As for the shareholders who are still holding on to Top Glove, they would want answers.

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