See family still holds court in Kian Joo Can

Updated: Saturday March 15, 2014 MYT 12:04:21 PM

See family still holds court in Kian Joo

BY M SHANMUGAM

HAVING a competing bid for their company is the kind the stuff shareholders dream of. In this respect, shareholders of Kian Joo Can Factory Bhd have nothing much to complain about.

After years of being in the doldrums because of an over-hang in its shares due to internal dispute among the major shareholders and a tough operating environment, the company is coming closer to the realisation of its full value, thanks to two prospective offers for its assets and shares.

Following years of boardroom and court room battles, a block of 32.9% in Kian Joo, which belonged to the See family – the founders of the can manufacturer – was sold to Can One Bhd at RM1.65 per share in January 2012 following a liquidation process.

Some members of the See family are still fighting the liquidation process but Can One, the only other notable can manufacturer in the domestic market, effectively swooped in and took control of the industry.

In November last year, Aspire Insight Sdn Bhd, a private company that is a joint venture between Chee Kay Leong and the Employees Provident Fund (EPF), made an offer to acquire the assets and liabilities of Kian Joo for a total of RM1.47bil, valuing each share at RM3.30 each. The EPF owns around 10% in Kian Joo and has been a long time shareholder of the company.

Some of the minority shareholders, such as the See family that is said to be collectively holding 15% or more in Kian Joo, were not happy.

Hey, but then, this is the corporate world where very rarely are deals done on a win-win basis.

The offer from Aspire Insight may undervalue the company, but that is how the game is played. The predators – Aspire Insight in this case – are likely to have made their offer at that price because they need to leave “something on the table” for themselves to earn a return after taking over the assets and liabilities of the firm.

Aspire Insight is a formidable force. Chee is a seasoned hand in the can manufacturing business having been in various positions in Can-One since 1977 while EPF had the balance sheet to bankroll the takeover.

After Can-One took over Kian Joo, Chee was made executive director in Kian Joo to take charge of operations.

In fact, he had resigned from all positions in Kian Joo only a day before Aspire Insight made the move for the company.

This in some way turned the offer into a management buyout and allows Can-One to vote in the deliberations if Aspire Insight’s offer goes to shareholders.

Everything seemed to be heading towards a done deal for Aspire Insight until last Monday.

The dynamics for Kian Joo changed after Toyota Tsusho Corp (TTC), an entity from Japan with cash of RM12bil as at March 31, 2012, made an offer to buy up the shares at RM3.74 each.

TTC’s offer is a cash deal, subject to the company doing a due diligence and it getting 51% acceptance. The offer is clean, which means shareholders who accept the deal take their money and walk away.

But TTC’s offer for now is only an expression of interest and yet to be considered a firm offer. That can only happen if Kian Joo allows TTC to conduct a due diligence.

Nevertheless, TTC’s offer has given existing shareholders some extension of time to get a better price.

On Thursday, the board of Kian Joo pushed to March 31 the deadline for Aspire Insight and the listed company to sign a definite agreement on the former’s offer.

The timing of TTC’s offer, which is just three days before Aspire Insight and Kian Joo are due to sign a definitive agreement, seems to suggest that there is a bigger game in play in the can manufacturer.

TTC is a big name and to some extent cancels out the EPF “wow” factor in Aspire Insight. TTC has interest in the can manufacturing business because it has a 30% stake in Indonesia’s PT Hokkan Indonesia.

If TTC makes a firm offer by end of the month, Aspire Insight has no choice but to up its offer if it still wants to take over Kian Joo.

But will Aspire Insight go into a bidding war?

That decision will largely lie with the EPF. At RM3.74 per share, the provident fund may not be keen on accepting the offer from TTC. At the same time, it may opt not to go into a bidding war.

The fund has already attached a fair value of RM3.30 for each Kian Joo share in the form of its offer price to buyout Kian Joo. How can it justify making a counter offer at a higher price now, solely because there is a competing offer?

Can-One would not lose out if the TTC offer comes through because it acquired the block in Kian Joo for RM1.65 per share in January 2012. At RM3.74 per share, it stands to make a gain of RM305.41mil, which is not too bad for an investment that it has been holding for just over two years.

If the TTC deal comes through, a big winner would be the minorities of Kian Joo, especially the See family because of the higher price tag attached to the company.

Apart from getting a higher value for their interest in Kian Joo, TTC would probably count on them to run the business operations here because they know it so well. So, it seems the See family still holds court in Kian Joo.

 

Updated: Saturday March 15, 2014 MYT 12:03:09 PM

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

BY NG BEI SHAN

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?

 

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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