A rival offer has changed the scenario for the Kian Joo buyout deal

by **Cals** Mon 17 Mar 2014, 02:59

Published: Saturday March 15, 2014 MYT 12:00:00 AM
Updated: Saturday March 15, 2014 MYT 12:03:09 PM
[size=40]A rival offer has changed the scenario for the Kian Joo buyout deal
BY NG BEI SHAN[/size]
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Aspire Insight is led by Kian Joo COO Chee Khay Leong and the EPF.

Kian Joo Can Factory Bhd’s board and shareholders have some serious thinking to do.
Should they decide to go with the RM1.47bil or RM3.30 per share buyout deal offered by Aspire Insight Sdn Bhd or do they opt instead to pursue the offer by the Japanese?
Earlier this week, Toyota Tsusho Corp (TTC), the trading arm of Japan’s Toyota Group, made a non-binding cash offer to buy 51% of Kian Joo.
That offer seems to have changed the scenario for Kian Joo. TTC said it was willing to pay up to RM3.74 per Kian Joo share.
But a few things need to be noted about the TTC offer. Firstly, it is a non-binding offer, which means it could fall through.
Secondly, they could lower their offer price after their due diligence.
And thirdly, they seem to be only keen on securing a 51% controlling stake, which means that they could possibly opt to make a partial general offer for the shares in Kian Joo to reach that level of shareholding. If this is the case, then shareholders of Kian Joo would only be able to sell TTC a portion of their shares.
Back to the Aspire Insight offer, which was made last November.
The vehicle is led by Kian Joo’s executive director cum chief operating officer Chee Khay Leong and the Employees Provident Fund (EPF).
Kian Joo’s board and shareholders now have to figure out which option to take. What must surely be playing on their minds is the fact that a third party seem to have placed a much higher valuation on Kian Joo compared to what Aspire Insight was willing to pay.
It is, hence, comprehensible why both Kian Joo and Aspire Insight resolved to further extend the timeline by two weeks to ink their deal.
They moved their deadline from Friday to March 31.
While the letter of interest given by TTC appears as an opportunity for existing shareholders to cash out, Kian Joo has clarified that the Japanese firm had yet to approach its directors or substantial shareholders for the sale of their shares.
Kian Joo told the stock exchange that its board would take action on the expression of interest after it consults its advisers.
Some observers are puzzled why TTC did not make a firm offer to the shareholders of Kian Joo but instead chose to write to the company.
However, one observer explains: “TTC’s expression of interest might have been misinterpreted as a hostile takeover if it chose to approach Kian Joo’s shareholders without courting the company first.”
TTC’s offer, albeit non-binding and preliminary, does indicate that Kian Joo deserves a higher valuation. TTC’s indicative offer price comes in 13.3% higher than the RM3.30 apiece offered by Aspire Insight last November.
PublicInvest Research and TA Securities’ target prices for the counter are pegged at RM3.52 and RM3.90 respectively.
It is also noteworthy that Kian Joo’s land has not been revalued since 2009.
An analyst said: “Its land in Batu Caves for instance, is definite worth much more now.”
Kian Joo owns 9.47ha of land in Batu Caves, which has a book value of RM119.3mil.
A delicate consideration for Can-One
Not only is extra time for deliberation vital for Kian Joo, its 32.9% shareholder Can-One is also presented a new option to realise profits from its investment with a 127% return.
Can-One had elbowed the See family out from the block that used to belong to the latter in early 2009.
Can-One then had to finance the acquisition entirely through borrowings, stretching its net gearing to 2.2 times after it secured the block for RM241.1mil or RM1.65 apiece.
Although Can-One’s net gearing level has since improved to 0.81 times as at Dec 31, 2013, its net tangible asset per share would be boosted by leaps and bounds if it decides to cash out based on the indicative alternative offer from TTC.
It is believed that there are two representatives from Can-One on Kian Joo’s board.
The Sees, who founded the company and are estimated to own some 15% of Kian Joo now, have two seats on the board after See Tiau Kee resigned as executive director on Feb 28.
Where does this put EPF?
The saga also puts EPF, which owns 10.03% of Kian Joo, in the spotlight. It is both a major shareholder and a party that’s seeking to buy out Kian Joo.
But given attractive offer price being offered by TTC, it does give the EPF, whose mandate is to enhance returns for its contributors, an attractive option to cash out.
An industry observer quips: “EPF should be more interested in profiting from an investment than managing a business especially if the offer meets its expectations.”
Aspire Insight has said that it intended to unlock Kian Joo’s growth potential as well as diversifying its income stream.
While TTC did not state the rationale in the letter of interest, some observers noted the Japanese giant’s soft drink container business in Indonesia appears synergistic to Kian Joo’s bread and butter.
One observer opines: “TTC may also be looking for a good investment away from its home turf and the dividend yield for this counter is quite decent.”
If Kian Joo is interested to explore the interest shown by TTC further, it would have to reply to the Japanese firm by Monday.
The process will be followed by signing a memorandum of understanding and then due diligence to be carried out by TTC before the deal if firmed up.
Choosing TTC as its strategic investor may also open more doors for the company’s long-term growth especially in the international arena given the conglomerate’s global presence.
The Japanese heavyweight may transfer some of its know-how in helping Kian Joo improving its efficiency in the long run.
Besides the straightforward cash transaction as indicated by cash-rich TTC, Kian Joo’s listing status will remain.
Meanwhile, Kian Joo has been negotiating with Aspire Insight for some time and talks are at a more advanced stage.
Aspire had offered to buy Kian Joo’s assets and liabilities for RM1.47bil. The method may take up a year or more as it involves court approvals.
If the company decides to continue with Aspire, it will have to garner 75% shareholder approval.
On the flip side, existing major or minority shareholders will have to sell some of their equity positions to TTC for it to own 51% in Kian Joo.
While Kian Joo and Aspire are buying time before sealing the deal, the question remains - will Aspire sweeten the deal now that TTC has thrown in a rival offer, which appears rather attractive?