A disgruntled shareholder of Stone Master Corp Bhd has filed a complaint with Securities Commission Malaysia stating that the existence of parties acting in concert (PACs) in the company should have triggered a mandatory general offer for the remaining shares they do not already own for as much as 80 sen apiece.

After adjusting for a series of corporate exercises, the MGO price today would theoretically be 44.66 sen. The stock closed at 26.5 sen last Thursday.

The letter of complaint, which was viewed by The Edge, was sent to the SC on March 20 this year.

To recap, Stone Master (fundamental: 0.15; valuation: 0.00) saw the entry of two new directors, Datuk Yii Ching Siew @ Eii Ching Siew and Datuk Karen Lee Vun Va @ Lee Fong Yin, on Aug 1 last year.

Yii was appointed chairman while Lee was appointed deputy chairman in the loss-making ceramic tile manufacturer.

The following week, Yii and Lee acquired 8.5 million shares and 7.54 million shares respectively on the open market on the same day — Aug 6. Both blocks of shares were acquired at the same average price as well — 80 sen.

After the acquisition, Yii had an 18.4% stake in Stone Master and Lee had 16.32%. This amounts to a 34.72% stake in the company.

Under the Malaysian Code on Take-Overs and Mergers 2010, when PACs acquire more than 33% in a company, they are required to make a general offer to the remaining shareholders at the last price they paid.

While buying shares on the same day and at the same price may not be enough to constitute acting in concert, the fact that both Yii and Lee were appointed as directors prior to the transactions does raise some eyebrows.

The nature of the open-market transactions have also come under scrutiny. About 15.778 million shares crossed at 4.50pm sharp on Aug 1 last year at 80 sen apiece, just before the market closed. Meanwhile, the volume for the entire day was only 18.57 million shares.

In fact, Stone Master was generally trading at very thin volumes at the time. How did Yii and Lee know that there would be a huge sell order of about 15.8 million shares just before the market closed and who was their counterparty?

The coordinated nature of the so-called open-market transaction raises doubt that both Yii and Lee did not have prior knowledge of the sell order before they acquired the shares.

Furthermore, they appear to have a prior working relationship in Miracle Asia Sdn Bhd, where Yii is the founder, director and 71%-shareholder and Lee is group general manager.

When contacted, Lee declined to comment.

“I believe they are acting in concert and have surreptitiously taken management control of Stone Master,” the disgruntled shareholder said in the letter of complaint.

In the letter, Datin Chan Chui Mei was also identified as a PAC with Yii and Lee.

Chan emerged as a substantial shareholder in Stone Master on Aug 28 with a 5.8% stake after accumulating 2.7 million shares through her vehicle, Starfield Capital Sdn Bhd. She later increased her holdings to 4.86 million shares or a 10.51% stake on Sept 8 by acquiring shares on the open market.

Chan paid an even higher price of 88 sen on Sept 8 for some two million shares. She was appointed to the board on Sept 19 as an executive director.

“It has come to my attention that Yii has acquired some 8.5 million shares (18.4%) together with Lee acquiring 7.54 million shares (16.32%) and Datin Chan acquiring 4.86 million shares (10.51%), collectively amounting to 20.9 million shares (45.23%) and would have breached the 33% threshold requirement of the Malaysian Code on Take-Overs and Mergers 2010. These three parties purchased the shares in the months of August and September,” the shareholder wrote.

While Chan’s link to Yii and Lee is less obvious, a quick background check of the low-profile lady shows that she had previously surfaced in companies such as Richnion Bhd and Richnion Management Sdn Bhd alongside her husband Datuk Clement Tan Wei Loon, who was sued by a disgruntled investor.

Tan should not be confused with Tan Wei Lian, a former executive director on the board of Stone Master who has a 3.4% stake in the company. He resigned on Sept 9 last year while his sister, Tan Lee Chin, resigned as managing director on Nov 26.

There does not appear to be any family ties between Tan and Wei Lian.

It remains to be seen if the SC will take any actions against Yii, Lee and Chan, based on the complaint. Even if they were found to be acting in concert at the time, it is unclear if the SC can still force the directors responsible — be it Yii and Lee, or all three — to issue an MGO at this juncture.

It is worth noting that in 2011, the Terengganu government — the largest shareholder of Eastern Pacific Industrial Corp Bhd (EPIC) — was forced to make a general offer and cash settlement to shareholders who had sold their shares. This was because Lembaga Tabung Amanah Warisan Negeri Terengganu’s (LTAW) purchase of EPIC shares from Ahmad Zaki Resources Bhd had exceeded 2% of EPIC’s issued and paid-up capital within six months, which means that LTAW and the PACs were obligated to undertake an unconditional takeover offer for all the remaining shares they did not already own at RM3.10 per share.

Meanwhile, Stone Master has undertaken a series of corporate exercises, including a reduction in the par value of the shares from 50 sen to 25 sen as well as a four-for-one rights issue, which has changed the group’s share base quite drastically.

Hypothetically, an MGO could take place at 44.66 sen based on the acquisition price that Yii and Lee paid. That works out to a 68.5% upside from the stock’s closing price of 26.5 sen last Thursday. In contrast, if Chan were found to be acting in concert, the MGO price would be 49 sen or a 84.9% upside.

Note that Stone Master’s share price had performed remarkably well after the entry of Yii and Lee, rising over 125% to 80 sen in less than a month. The share price then increased to as high as RM1.15.

Interestingly, if the SC undertakes an investigation on Stone Master, its board should be well versed with the intricacies of the takeover code with Mohd Noor Abd Rahim being on the board as an independent non-executive director. After all, he had been the deputy general and head of the SC’s Takeover and Mergers Department until November 2011. He was appointed to the company’s board on Dec 8 last year.

This article first appeared in The Edge Malaysia Weekly, on June 15 - 21, 2015.

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