Iris to pare down Versatile Creative stake

by **Cals** Mon 21 Jul 2014, 02:16

Published: Saturday July 19, 2014 MYT 12:00:00 AM
Updated: Saturday July 19, 2014 MYT 9:22:48 PM
[size=40]Iris to pare down Versatile Creative stake
BY JOHN LOH[/size]
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Tan spells out Iris’ two options.
SOMETIMES things don’t go according to plan.
Iris Corp Bhd probably got a rude shock on Wednesday after minority shareholders of Versatile Creative Bhd (VCB) blocked its privatisation of the paper and packaging materials firm.
The proposal was voted down by a mere 28 shareholders who held 3.66% of VCB. But they made up an overwhelming 84.85% of those who were present and voting at the EGM.
This despite the fact that VCB’s independent adviser, Kenanga Investment Bank Bhd, had urged shareholders to accept the 50-sen-per-share offer, saying it was both fair and reasonable.

VCB would have had to obtain approval from 75% of its shareholders in order to push the delisting through, provided not more than 10% of those present and voting dissented.
Those who rejected Iris’ offer contend that the 50-sen offer materially undervalues the lossmaking paper and printed materials maker.
They argue that VCB owns two plots of industrial land in Pandan Indah, Kuala Lumpur, and Balakong, Selangor, with a combined net book value of RM27.4mil.
But VCB’s prized asset is undeniably its 6.2% stake in Iris, whose shares have doubled in value since November, after Felda Investment Corp took up a 26.7% interest in the technology and security systems company.
VCB’s 126.42 million shares in Iris are now worth RM54.36mil compared with RM24.65mil a year ago, when it was trading at 19.5 sen apiece. Iris closed yesterday at 43 sen. VCB ended higher at 53 sen.
Its stake in Iris is almost equal to its market capitalisation of RM58.64mil, making VCB, with shareholders’ funds of RM99.37mil, a cheaper proxy to Iris.
The group’s minorities also probably see it gaining from possible tie-ups between Iris and the sprawling Felda group, an agri-business giant with interests in plantations, property and even a botanical drugs and life sciences venture that could raise U$300mil on the Nasdaq exchange by March.
Iris and its joint offerors had launched a takeover for all the shares it did not own in VCB last September at 50 sen apiece, a premium to the company’s then market price of 39 sen.
But it fell slightly short of the 90% threshold needed to effect a compulsory acquisition – Iris had to secure 90% of the disinterested shares, or 92.49% of VCB’s issued shares.
Then in April, after Iris had bumped up its stake in VCB to 89.49% from 24.89%, rendering the latter a subsidiary of Iris, VCB announced that it was in breach of the Companies Act, which states that a company cannot hold shares in its parent.
To remedy this, VCB would have to put up for sale its block of shares in Iris within 12 months.
At the same time, with VCB’s free float at only 10.36%, it was told by Bursa Malaysia that it had six months until Dec 4 to comply with the 25% shareholding spread, or face a suspension in the trading of its shares.
VCB, probably confident that the privatisation would go through without a hitch, responded by saying it had no plan to rectify the situation.
Be that as it may, minority shareholders holding out for a better offer will be disappointed.
“We have taken cognisance of their (minority shareholders) wishes, and will not coerce them (to accept the deal),” Iris group managing director and CEO Datuk Tan Say Jim tells StarBizWeek.
Tan says Iris has two options: either sell down its stake in VCB to below 51%, or issue new shares and place them out to dilute its interest to that level.
The move could kill two birds with one stone.
If Iris sells or places out enough shares to bring down its stake in VCB to less than 51%, at which point it would be treated as a jointly-controlled entity instead of a subsidiary, then it will be able to fulfil Bursa’s shareholding rules as well as the Companies Act.
That would also save VCB the hassle of finding buyers for its 126.42 million shares in Iris.
It should be noted, however, that neither option involves a fresh takeover bid from Iris.
The buyout, although unsuccessful, will not thwart Iris’ plans, quips Tan.
“Our aim was to acquire a packaging company to support our agro-tech business and provide packaging solutions for farm produce, and we have done that,” he says. “Also, people don’t realise that VCB does packaging for both food and non-food products. The potential is enormous.”