2. DETAILS OF THE PROPOSED ACQUISITION
2.1 Background Information on BTQ
BTQ is a private limited company incorporated under the Companies Act, 1965 (“Act”) on 26 October 1967. As at 31 December 2009, the authorised share capital of BTQ is RM5,000,000 comprising 5,000,000 ordinary shares of RM1.00 each (“BTQ Shares”), of which 1,000,000 BTQ Shares have been issued and fully paid-up. BTQ is principally involved in the operation of quarries and trading of granite aggregates. BTQ’s subsidiaries are principally involved in the operation of quarries and the manufacturing, selling and distribution of granite aggregates, sand, construction and building materials, premix products, and hiring of machinery.
BTQ is a wholly-owned subsidiary of YTL Industries, which in turn is a wholly-owned subsidiary of YTL Corp.
Based on the audited financial statements of BTQ and its subsidiaries (“BTQ Group”) for the financial year ended (“FYE”) 30 June 2009, the profit after tax (“PAT”) after minority interests (“MI”) and net assets of BTQ Group are approximately RM27.7 million and RM97.2 million respectively.
2.2 Background Information on YTL Industries
YTL Industries is a public company incorporated under the Act on 14 May 1976. As at 31 December 2009, the authorised share capital of YTL Industries is RM100,000,000 comprising 100,000,000 ordinary shares of RM1.00 each, of which 12,980,009 ordinary shares have been issued and fully paid-up. YTL Industries is principally involved in investment holding, property development and property investment.
2.3 Salient Terms of the Agreement
The salient terms of the Agreement are as follows:-
2.3.1 Sale and Purchase
YTL Cement shall purchase all the 1,000,000 BTQ Shares free from encumbrances (any interest, right, claim or equity of any person including without limitation, any right to acquire, option or pre-emptive right, mortgage, easements, rights of way, charge, debenture, caveats, lien, pledge or any other encumbrance whatsoever, security interest or any similar arrangement of any nature whatsoever) at the Purchase Consideration to be paid thirty (30) days from the date of the satisfaction of all conditions as set out in Section 2.3.2 of this Announcement (or otherwise waived by YTL Cement or YTL Industries, as the case may be) and shall include such other date mutually agreed upon by YTL Cement and YTL Industries (“Completion Date”).
2.3.2 Conditions
The sale and purchase of the said BTQ Shares shall be subject to the satisfaction of the following conditions:-
(i) all necessary approvals from Bursa Malaysia Securities Berhad (“Bursa Securities”) and/or any approval as may be required from any relevant authority to be obtained by YTL Cement and/or YTL Industries respectively have been obtained;
(ii) all relevant corporate approvals necessary for the Proposed Acquisition by YTL Cement and YTL Industries respectively have been obtained, including the approval of the shareholders of YTL Cement in an Extraordinary General Meeting (“EGM”) to be held and if required, the approval of the shareholders of YTL Industries;
(iii) the written consents of all existing lenders of BTQ whose approvals are required for the Proposed Acquisition have been obtained by YTL Industries subject to terms and conditions acceptable to YTL Cement at its discretion;
(iv) YTL Cement and YTL Industries’ obligations to be performed on or before the Completion Date pursuant to the Agreement shall have been duly performed;
(v) all warranties (as set out in the Agreement) shall have been true, correct and complete in all respects when made by YTL Cement and YTL Industries and shall remain true, correct and complete up to and including the Completion Date as if made at that time;
(vi) the completion of the Proposed Acquisition shall not violate any applicable laws, order or decree of any court or relevant authorities; and
(vii) no fact, event or circumstance having occurred before the time of the completion of the Agreement (“Completion”) which might materially adversely affect BTQ or its prospects or which could reasonably be expected to have a material adverse effect on the business and/or the financial condition of the BTQ and/or the transactions contemplated in the Agreement.
In the event that the above conditions are not satisfied or fulfilled (unless otherwise waived by YTL Cement or YTL Industries, as the case may be) within one hundred eighty (180) days from the date of the Agreement or such other date mutually agreed upon by YTL Cement and YTL Industries, the Agreement shall automatically lapse and the parties shall have no further claims whatsoever against the other save and except for antecedent breaches of the Agreement.
2.3.3 Completion
If the obligations of YTL Industries to deliver the documents stipulated in the Agreement are not complied with on the Completion Date, YTL Cement may:-
(i) defer Completion;
(ii) proceed to Completion as far as practicable; or
(iii) terminate the Agreement by notice in writing.
2.4 Justification and Basis of Arriving at the Purchase Consideration
The Purchase Consideration was arrived at on a “willing-buyer willing-seller” basis after taking into consideration the following:-
(i) the audited PAT after MI of BTQ Group for the FYE 30 June 2009 of RM27.7 million;
(ii) the unaudited PAT after MI of BTQ Group for the five (5)-month financial period ended 30 November 2009 of RM6.1 million; and
(iii) the future prospects of BTQ Group.
Based on (i) above, the Purchase Consideration of RM150,000,000 represents a price-to-earnings multiple of 5.41 times.
2.5 Source of Funds
YTL Cement will finance the Proposed Acquisition using internally generated funds.
2.6 Original Cost of Investment
The original cost of investment of YTL Industries in BTQ is RM2,000,000 incurred on 21 January 1985.
2.7 Liabilities to be Assumed
There are no liabilities, including contingent liabilities and guarantees, to be assumed by YTL Cement arising from the Proposed Acquisition.
3. RATIONALE FOR THE PROPOSED ACQUISITION
YTL Cement and its subsidiaries (“YTL Cement Group”) purchases almost all of its 20mm aggregates and all of its manufactured sand, two of the main raw materials for its ready-mixed concrete manufacturing business, from BTQ Group as YTL Cement Group is not currently involved in the operation of quarries. BTQ Group also supplies limestone quarrying services to one of YTL Cement Group’s cement manufacturing plants. BTQ Group’s premix business augments its quarrying business.
The Proposed Acquisition is intended to rationalise the quarry related businesses of YTL Corp and its subsidiaries (“YTL Corp Group”) by housing these operations under YTL Cement which is involved in the manufacture and supply of ordinary portland cement, blended cement and clinker, processing and supply of ready-mixed concrete and related services through its subsidiaries.
The Proposed Acquisition is expected to:
(i) eliminate a large number of recurrent related party transactions between YTL Cement Group and YTL Corp Group; and
(ii) strengthen YTL Cement Group’s supply chain by providing a secure and sustained access to key raw materials used for production via vertical integration of upstream businesses.
4. RISK FACTORS IN RELATION TO THE PROPOSED ACQUISITION
4.1 Lease of Quarries
Some of the quarries operated by the BTQ Group are located on land which are under lease or licence and are subject to renewal. There is no certainty that these leases and/or licences will be renewed when they expire in the future or if these leases and licences are revoked due to non-compliance with the relevant rules and regulations governing the quarry business.
Notwithstanding this, the BTQ Group has in the past, been able to secure the renewal of these leases and licences.
4.2 Government Policies, Laws and Regulations
Quarry operators are required to apply for the relevant permits and approvals and comply with the relevant laws and regulations. There can be no assurance that should there be changes in the government’s policies, law or regulation towards commercial quarries, the business of BTQ Group will not be materially affected.
4.3 Dependence on Certain Industries
BTQ Group’s business is dependent on the building and construction industry. The products supplied by the BTQ Group, in particular, granite and premix asphaltic products, are key materials for the aforesaid industry. Should there be a downturn in the building and construction industry, the BTQ Group could be adversely affected. However, as YTL Cement Group is currently exposed to similar risk, the Proposed Acquisition is not expected to materially affect the Group going forward.
4.4 Environmental Concerns
Whilst the environmental aspects of quarry operations are governed by various statutes and regulations, the nature of quarrying is such that it will ultimately have an adverse impact on the environment. In addressing these environmental concerns, BTQ Group has taken the necessary steps to minimise the impact to the environment such as using water sprinklers to reduce air pollution, regularly monitoring air and water effluence from the quarries and by ensuring that it complies with the relevant environmental laws and regulations.
4.5 Acquisition Risk
There is no assurance that the anticipated benefits of the Proposed Acquisition will be realised or that YTL Cement would be able to recoup its investment in BTQ. There is also no certainty that YTL Cement would be able to maintain uniform standards of quality, service, controls, procedures and policies in integrating BTQ Group’s operations. However, this is mitigated by YTL Cement’s familiarity with BTQ Group’s operations as well as the sector in which BTQ Group operates, given that both companies are involved in similar businesses.
5. PROSPECTS
The prospects of BTQ Group are closely related to the construction sector.
According to the Economic Report 2009/2010, the construction sector is envisaged to expand 3.2% (2009: 3.5%), with all sub-sectors registering steady growth. The sector is expected to benefit from the economic recovery and ongoing construction activities under the second stimulus package. The non-residential sub-sector is expected to pick up strongly spurred by better demand for property and commercial buildings. The residential sub-sector is also projected to strengthen following improved consumer sentiment and job prospects.
The BTQ Group is one of the largest quarry operators in Malaysia. Notwithstanding the large number of quarry operators in Malaysia, the BTQ Group does not view the granite aggregates market as being highly competitive due to countervailing factors which include its well-located quarries, freight costs disadvantages for quarries located elsewhere to target its markets, the capital investments required to start new quarry operations and limited number of new quarrying licences.
Based on the aforesaid, YTL Cement is optimistic of the future prospects of BTQ Group.
6. Effects of the Proposed Acquisition
6.1 Share Capital and Substantial Shareholders’ Shareholdings
The Proposed Acquisition will not have any effect on the issued and paid-up share capital and the substantial shareholders' shareholdings of YTL Cement as the Proposed Acquisition does not involve any issuance of new shares in YTL Cement.
6.2 Net Assets and Gearing
The Proposed Acquisition is not expected to have any material effect on the net assets and gearing of the YTL Cement Group.
6.3 Earnings and Earnings Per Share
The Proposed Acquisition is not expected to have an immediate material effect on the earnings and earnings per share of the YTL Cement Group for the financial year ending 30 June 2010 as the Proposed Acquisition is only expected to be completed in the third (3rd) quarter of the financial year ending 30 June 2010.
However, barring any unforeseen circumstances, the Proposed Acquisition is expected to improve the earnings of YTL Cement Group in the longer term.
7. CONDITIONS TO THE PROPOSED ACQUISITION
The Proposed Acquisition is conditional on the following approvals being obtained:-
(a) the shareholders of YTL Cement at an EGM to be convened; and
(b) any other relevant authorities and/or persons, if required.
8. DEPARTURE FROM THE EQUITY GUIDELINES OF THE SECURITIES COMMISSION (“SC GUIDELINES”)
To the best of the knowledge of the Board, the Proposed Acquisition does not depart from the SC Guidelines.
9. MAJOR SHAREHOLDERS’ AND DIRECTORS’ INTERESTS
9.1 Interested Major Shareholders
YTL Industries being a major shareholder of the Company is also the vendor of the 1,000,000 BTQ Shares. Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay, Yeoh Tiong Lay & Sons Holdings Sdn Bhd (“YTLSH”) and YTL Corp who are major shareholders of the Company are also major shareholders of YTL Industries via the shareholdings of YTL Corp. YTLSH, YTL Corp, YTL Industries and Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay are collectively referred to as “Interested Major Shareholders”.
As at 31 December 2009, the Interested Major Shareholders and their shareholdings in YTL Cement are as follows:-
 | <---------Direct---------> | <---------Indirect--------> |
| No. of Shares | (%) | No. of Shares | (%) |
| | | | |
| YTLSH | 19,000 | * | (1) 238,498,105 | 50.69 |
| | | | |
| YTL Corp | 17,583,603 | 3.74 | (2) 220,914,502 | 46.95 |
| | | | |
| YTL Industries | 210,899,198 | 44.82 | - | - |
| | | | |
| Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay | 1,681,634 | 0.36 | (3) 238,832,990 | 50.76 |
| | | | |
Notes:
* Less than 0.01%
(1) Deemed interested by virtue of its interests held through YTL Corp, YTL Power International Berhad (“YTL Power”) and YTL Industries pursuant to Section 6A of the Act
(2) Deemed interested by virtue of its interests held through YTL Power and YTL Industries pursuant to Section 6A of the Act
(3) Deemed interested by virtue of his interests held through YTLSH, YTL Corp, YTL Power and YTL Industries pursuant to Section 6A of the Act and interests held through his spouse and children pursuant to Section 134(12)(c) of the Act
9.2 Interested Directors
(i) Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, Dato’ Yeoh Seok Kian, Dato’ Yeoh Seok Hong, Dato’ Sri Michael Yeoh Sock Siong, Dato’ Yeoh Soo Keng and Dato’ Mark Yeoh Seok Kah are the children of Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay; and
(ii) Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, Dato’ Yeoh Seok Kian, Dato’ Yeoh Seok Hong and Dato’ Sri Michael Yeoh Sock Siong are also Directors of YTL Industries.
In view of the above, Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay, Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, Dato’ Yeoh Seok Kian, Dato’ Yeoh Seok Hong, Dato’ Sri Michael Yeoh Sock Siong, Dato’ Yeoh Soo Keng and Dato’ Mark Yeoh Seok Kah (collectively referred to as “Interested Directors”) are deemed interested in the Proposed Acquisition.
As at 31 December 2009, the shareholdings of the Interested Directors in YTL Cement are as follows:-
| <---------- Direct --------> | <---------Indirect-------> |
| No. of Shares | (%) | No. of Shares | (%) |
| | | | |
| Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay | 1,681,634 | 0.36 | (1)238,832,990 | 50.76 |
| | | | |
| Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping | 2,042,923 | 0.43 | - | - |
| | | | |
| Dato’ Yeoh Seok Kian | 618,754 | 0.13 | (2)83,200 | 0.02 |
| | | | |
| Dato’ Yeoh Seok Hong | 225,634 | 0.05 | (2)45,123 | 0.01 |
| | | | |
| Dato’ Sri Michael Yeoh Sock Siong | 1,265,634 | 0.27 | (2)1,109,388 | 0.24 |
| | | | |
| Dato’ Yeoh Soo Keng | 938,251 | 0.20 | (2)90,251 | 0.02 |
| | | | |
| Dato’ Mark Yeoh Seok Kah | 187,200 | 0.04 | (2)135,200 | 0.03 |
| | | | |
Notes:
(1) Deemed interested by virtue of his interests held through YTLSH, YTL Corp, YTL Power and YTL Industries pursuant to Section 6A of the Act and interests held through his spouse and children pursuant to Section 134(12)(c) of the Act
(2) Deemed interested by virtue of interests held through their spouse pursuant to Section 134(12)(c) of the Act
9.3 Persons Connected
| <------- Direct ----------> | <-----Indirect -----> |
| No. of Shares | (%) | No. of Shares | (%) |
| | | | |
| Puan Sri Datin Seri Tan Kai Yong @ Tan Kay Neong(1) | 90,251 | 0.02 | - | - |
| | | | |
| Dato’ Yeoh Soo Min(2) | 225,634 | 0.05 | (9)138,357 | 0.03 |
| | | | |
| Dato’ Tan Kim Kuan(3) | 138,357 | 0.03 | - | - |
| | | | |
| Datin Lim Lee Lee(4) | 83,200 | 0.02 | - | - |
| | | | |
| Datin Kathleen Chew Wai Lin(5) | 45,123 | 0.01 | - | - |
| | | | |
| Datin Sri Tan Siew Bee(6) | 1,109,388 | 0.24 | - | - |
| | | | |
| Choy Wai Hin(7) | 90,251 | 0.02 | - | - |
| | | | |
| Datin Julie Teh Chooi Gan(8) | 135,200 | 0.03 | - | - |
| | | | |
| YTL Power | 10,015,304 | 2.13 | - | - |
| | | | |
(1) Spouse of Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay
(2) Daughter of Tan Sri Dato’ Seri (Dr) Yeoh Tiong Lay and sister of Tan Sri Dato’ (Dr) Francis Yeoh Sock Ping, Dato’ Yeoh Seok Kian, Dato’ Yeoh Seok Hong, Dato’ Sri Michael Yeoh Sock Siong, Dato’ Yeoh Soo Keng and Dato’ Mark Yeoh Seok Kah
(3) Spouse of Dato’ Yeoh Soo Min
(4) Spouse of Dato’ Yeoh Seok Kian
(5) Spouse of Dato’ Yeoh Seok Hong
(6) Spouse of Dato’ Sri Michael Yeoh Sock Siong
(7) Spouse of Dato’ Yeoh Soo Keng
(8) Spouse of Dato’ Mark Yeoh Seok Kah
(9) Deemed interested by virtue of interests held through her spouse pursuant to Section 134(12)(c) of the Act
The Interested Directors have abstained and will continue to abstain from deliberating and voting at the relevant Board meetings of YTL Cement in relation to the Proposed Acquisition.
The Interested Directors and Interested Major Shareholders will abstain from voting on the resolution to approve the Proposed Acquisition in respect of their direct and/or indirect shareholdings at the EGM to be convened. They have also undertaken to ensure that persons connected to them will abstain from voting on the resolution to approve the Proposed Acquisition in respect of their direct and/or indirect shareholdings in YTL Cement at the EGM to be convened.
Save for the above, none of the other Directors and/or major shareholders of YTL Cement or any person connected with them have any interest, direct or indirect, in the Proposed Acquisition.
10. DIRECTORS’ STATEMENT
Having considered the rationale for the Proposed Acquisition and after due deliberation, the Board (except for the Interested Directors) is of the opinion that the Proposed Acquisition is in the best and long-term interest of the Company and its shareholders.
11. INDEPENDENT ADVISER
In view of the interests of the major shareholders and Directors as set out in Section 9 of this Announcement, the Proposed Acquisition is deemed to be a related party transaction under Paragraph 10.08 of Chapter 10 of the Main Market Listing Requirements of Bursa Securities (“Listing Requirements”). Accordingly, AmInvestment Bank Berhad (a member of AmInvestment Bank Group) has been appointed as the Independent Adviser to advise the non-interested directors and shareholders of YTL Cement in relation to the Proposed Acquisition.
12. AUDIT COMMITTEE’S STATEMENT
The Audit Committee of the Company after having considered all aspects of the Proposed Acquisition (including but not limited to the rationale, prospects and financial effects) and the evaluation of the Independent Adviser, is of the opinion that the Proposed Acquisition is:-
(i) in the best interest of the company;
(ii) fair, reasonable and on normal commercial terms; and
(iii) not detrimental to the interest of the minority shareholders.
In forming its view, the Audit Committee has sought the advice of AmInvestment Bank Berhad, the Independent Adviser for the Proposed Acquisition.
13. AMOUNT TRANSACTED WITH THE INTERESTED MAJOR SHAREHOLDERS AND INTERESTED DIRECTORS (INCLUDING PERSONS CONNECTED WITH THEM) FOR THE PRECEDING 12 MONTHS
As at 31 December 2009, save for the Proposed Acquisition and recurrent related party transactions for which mandates have been sought or are not subject to disclosure pursuant to paragraph 10.09(1)(a) of the Listing Requirements, there were no related party transactions transacted with the Interested Major Shareholders and Interested Directors (including persons connected with them) for the preceding twelve (12) months.
14. PERCENTAGE RATIO
The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Listing Requirements is 11.59% which is computed by dividing the PAT after MI of BTQ Group (based on the audited financial statements of BTQ and its subsidiaries respectively) with the audited PAT after MI of YTL Cement Group for the FYE 30 June 2009.
15. ESTIMATED TIME FRAME FOR COMPLETION
Barring any unforeseen circumstances, the Board expects the Proposed Acquisition to be completed in the third (3rd) quarter of the financial year ending 30 June 2010.
16. CIRCULAR TO SHAREHOLDERS
A circular to shareholders setting out the details of the Proposed Acquisition will be sent to shareholders in due course.
17. DOCUMENTS AVAILABLE FOR INSPECTION
The Agreement will be made available for inspection at the registered office of YTL Cement at 11th Floor, Yeoh Tiong Lay Plaza, 55 Jalan Bukit Bintang, 55100 Kuala Lumpur during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this Announcement.
This Announcement is dated 15 January 2010.
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