Farm’s Best in RM380m reverse takeover deal

by **Cals** Mon 02 Jun 2014, 23:56

Business & Markets 2014

Written by Charlotte Chong of theedgemalaysia.com

Monday, 02 June 2014 09:25

KUALA LUMPUR: SHH (Malaysia) Holdings Sdn Bhd (SHH Malaysia), which operates a poultry business in Shandong, China, is vying to undertake a reverse takeover (RTO) of Farm’s Best Bhd.

Under the proposed RTO, SHH Malaysia — owned by three Chinese shareholders — will form a NewCo to undertake the corporate exercise to inject its poultry business in China into Farm’s Best for RM380 million and in return, it will be issued 760 million new shares at 50 sen each.

“SHH China’s revenue and profit are almost five times the size of Farm’s Best,” a source told The Edge Financial Daily.

It is understood that M&A Securities Sdn Bhd will announce the proposed RTO for Farm’s Best to Bursa Malaysia soon.

Following the completion of the proposed RTO, Farm’s Best will be delisted from Bursa Malaysia and the NewCo will resume its listing status, said the source, adding that its poultry business would be consolidated with the NewCo.

Incorporated on Nov 7 last year, SHH Malaysia is owned by three Chinese nationals, namely Zhu Zong Ying, who holds a 75% stake, Zheng Wendi (22%) and Xu Mao Lei (3%).

SHH Malaysia holds a 100% equity interest in Singapore-based SHH Holding Pte Ltd, which in turn holds a 100% stake in Shandong Hua Hui Food Ltd (SHH China). SHH China’s principal activities are breeding of parent chickens, incubating of broilers, breeding of meat chicken for in-house usage and poultry chicken meat processing in China.

In an announcement dated Jan 20 this year, Farm’s Best said the proposed corporate exercise would enable the company and SHH Group to combine technical, management, marketing and development resources to derive economies of scale in their operations and to expand their customer base.

“Farm’s Best will be able to expand its customer base and have access to the China market through SHH Group. This also would propel Farm’s Best into a global poultry player,” it said.

According to the announcement, the merger would also help fully utilise Farm’s Best’s existing poultry processing plant which is currently under-utilised to export processed and further processed chicken products to China.

To date, Farm’s Best has accumulated losses of RM34.28 million and RM46.7 million at group and company levels respectively.

However, Farm’s Best will undertake capital reduction to wipe out its accumulated losses by halving its par value to 50 sen from RM1. Consequently, its share capital will be reduced to RM30.54 million from RM61.08 million.

It is worth noting that the proposed RTO comes amid its existing external auditors, Ernst & Young, opting out at its following annual general meeting.

In January, Farm’s Best entered into a heads of agreement for the proposed merger between Farm’s Best and SHH Malaysia, which would allow the latter to participate in the corporate exercise of Farm’s Best.

Farm’s Best said in a filing with the exchange last Friday that its net profit for its first quarter ended March 31, 2014 dropped a marginal 0.78% to RM507,000 from RM511,000 a year ago.

Revenue deteriorated 1.69% year-on-year to RM114.45 million from RM116.42 million.

Farm’s Best said in the same note that its poultry segment recorded an increase in revenue to RM111.16 million from RM103.79 million a year ago, mainly due to increase in average selling prices of live broilers and table eggs sold.

Its property segment posted lower revenue of RM3.3 million compared with RM12.63 million in financial year 2013. “This was due to a decrease in the number of units of property sold.”

Farm’s Best shares, meanwhile, dropped 0.8% to close at 62 sen last Friday, giving it a market capitalisation of RM37.9 million.

This article first appeared in The Edge Financial Daily, on June 2, 2014.