EPF: We will not run Kian Joo

by **Cals** Thu 28 Nov 2013, 07:11

Posted on 28 November 2013 - 05:39am

Kang Siew Li and Eva Yeong
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PETALING JAYA (Nov 28, 2013): The Employees Provident Fund (EPF) said its role in a pending RM1.47 billion takeover of Kian Joo Can Factory Bhd is to support the company's management to attain growth and not run it.

"EPF has a mandate to support and grow local champions who are well managed and profitable. Our role is to support the company's management to attain growth and not run it. We prefer to let the professionals do what they know best," its general manager of private markets department Mohamad Hafiz Kassim told SunBiz via email yesterday.

"Private equity is an important asset class for us and we are always exploring investments in companies that have experienced management and strong balance sheet," he added.

Mohamad Hafiz said post-takeover of Kian Joo, EPF's stake in the company will be "substantial, but not a controlling shareholder". EPF currently holds a 10.03% stake in Kian Joo.

Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew told SunBiz yesterday that the pension fund should continue to play a passive shareholder role and not take part in running the business if the proposed takeover of Kian Joo by the pension fund and Kian Joo director and COO Freddie Chee Khay Leong goes through.

"Under the Employees Provident Fund Act 1991, the pension fund is not supposed to invest in a company above a certain amount and they cannot make any company a subsidiary unless the said company is in the business of providing housing finance, such as in the case of Malaysia Building Society Bhd.

"Thus, it is not in EPF's business to run a company. However, it is possible that they intend to take a stake in the company (referring to Kian Joo's takeover offer) and be more of an investor rather than run the business," said Pong.

Pong added that EPF's plans remain to be seen, but it is likely that the pension fund will pare down its stake in Kian Joo eventually or take on a more passive role post-takeover.

A head of a local research firm who declined to be named, holds the view that EPF should not be involved in such takeovers.

"The takeover is a bit controversial as Kian Joo is much bigger than Can-One Bhd and Can-One's balance sheet is not really strong. They've had problems before," he said. Kian Joo's market capitalisation stood at RM1.43 billion yesterday compared with Can-One's RM579.12 million.

Still, he believes that the deal is likely to go through, with backing from EPF.

On the contrary, another research head from an insurance firm believes there is no issue for EPF to get involved in the takeover of Kian Joo, saying the move will benefit the pension fund as Kian Joo is a strong company and the takeover price of RM3.30 per share is considered fair.

Kian Joo's net profit surged 28.2% year-on-year to RM94.5 million for the nine months ended Sept 30, 2013, coming in line with market consensus forecast.

"EPF has its own private investments. It shouldn't be a problem for EPF to do this," the research head added.

Kian Joo had on Tuesday announced that it has received a letter of offer from Aspire Insight Sdn Bhd to acquire its entire business and undertaking for RM1.47 billion or RM3.30 per share. Aspire's shareholders are Ekuiti Merdu Sdn Bhd, which is wholly-owned by EPF, and Alleyways Sdn Bhd, which is controlled by Chee.

Can-One owns 32.9% of Kian Joo, while Kian Joo owns 54.83% in Box-Pak (Malaysia) Bhd. Aspire plans to take Kian Joo private once the acquisition is completed.

Kian Joo shareholders have until 5pm on Dec 10, 2013 to accept or decline the offer.

In a note to clients yesterday, Kenanga Research deems the offer price fair to Kian Joo shareholders given that the offer price is higher than the research firm's target price of RM3.16, a 2% premium to its 10-day volume-weighted average price of RM3.23 and higher than the net asset per share of Kian Joo of RM2.29 as at Sept 30, 2013.

"We reckon that this offer price is fair and reasonable hence minority shareholders are likely to accept this offer," said Kenanga Research.

Shares in Kian Joo closed unchanged at RM3.21 yesterday, while Can-One ended the day up 34 sen or 9.83% at RM3.80 and Box-Pak rose 14 sen or 6.22% at RM2.39.