KUALA LUMPUR: Having gained acceptances of only 1.6% as of Nov 3 from Lay Hong Bhd shareholders, QL Resources Bhd, which made an offer to privatise the former at RM3.50 a share, may well return the “accepted” shares to the respective shareholders, if the deal falls through.
QL Resources’ offer has failed to gain the traction that the Chia family, who are the major shareholders of the company, was hoping for. QL Resources is one of Asia’s largest egg producers and surimi manufacturers.
With a total of 38% interest in Lay Hong, including acceptances, and if its offer falls through, QL Resources may well return the “accepted” shares to the respective shareholders. Hence, the best bet for minorities interested in cashing out is to dispose of the shares in the open market — albeit at a slightly lower price. Lay Hong closed at RM3.45 yesterday.This is because its share price is expected to fall if the offer is unsuccessful.
“QL can only acquire shares [of owners] that have accepted the offer if the offer is successful (becomes unconditional). However, if the offer is still conditional on the closing date, all acceptances will have to be returned and these accepting shareholders can then opt to sell in the open market,” said executive director Chia Mak Hooi who was removed from the board of Lay Hong in September, precipitating the takeover exercise.
The offer will become unconditional if QL Resources manages to acquire more than 50% of Lay Hong shares. Note that the Yap family led by managing director Yap Hoong Chai has a 42.8% stake in Lay Hong and is the largest shareholder. The offer was supposed to close by Nov 5, but has since been extended to the end of the trading day on Nov 26. Notably, trading volumes of Lay Hong shares in the open market have slowed to a trickle — around 10,000 shares each day.
This suggests that most of the shareholders who haven’t accepted the offer are prepared to hang on to their shares, despite the fact that the independent adviser found the offer price to be fair and reasonable and recommended shareholders to accept QL Resources’ offer.
Chia also dismissed any plan to increase the offer price. “Our offer price is attractive and the independent adviser as well as Lay Hong have concurred that QL’s offer price is fair and reasonable. Currently, we have no plans to offer a higher price,” he told The Edge Financial Daily in a written reply.
Nonetheless, QL Resources does not seem prepared to give up just yet. It has not just extended the offer period, but has also been actively mopping Lay Hong shares in the open market. But given the thin volumes, this course of action has not been particularly fruitful for QL Resources. For example, the group only managed to acquire 35,900 Lay Hong shares last week, or a 0.07% of total shares issued.
Notably, the thin trading volumes are something that Lay Hong’s management plans to address going ahead, and Bursa Malaysia has given the company until March 2015 to increase its shareholding spread from the existing 17% back to the required minimum of 25%.
If the privatisation bid fails, the Yap family will probably have to undertake some corporate exercises to increase the public spread, assuming QL Resources hangs on to its shares.
Chia said that QL Resources will continue to hold its stake in Lay Hong, “as long as our investment provides good returns, and we are able to protect our shareholders’ interest.”
This article first appeared in The Edge Financial Daily, on November 11, 2014.