Can-One snaps up billion-ringgit offer

TheEdge Mon, Jun 10, 2019 08:41am - 4 years View Original


KUALA LUMPUR: Developments in Can-One Bhd over the next month will be interesting to watch.

In fact, this year has been eventful for Can-One and its single largest shareholder, prominent entrepreneur Yeoh Jin Hoe who controls a 27.41% stake in the company.

Fresh from extending a mandatory general offer for the remaining stake in Kian Joo Can Factory Bhd in February, Can-One last week announced the acceptance of an offer from Southern Capital Group Pte Ltd, to buy its sweetened creamer and evaporated creamer original equipment manufacturer unit, F&B Nutrition Sdn Bhd, for up to RM1 billion.

The Singapore-based private equity fund’s special purpose vehicle, Asia Dairy Creations Sdn Bhd (ADCSB), offers to pay between RM800 million and RM1 billion for F&B Nutrition.

Former Southern Bank Bhd’s chief executive officer and controlling shareholder Tan Sri Tan Teong Hean is deemed interest in Southern Capital, which has offices in Kuala Lumpur and Singapore. Tan is also Southern Capital’s investment committee chairman.

At first glance, the offer, if materialises, seems like a timely deal for Can-One to realise its investment and unlock further value for shareholders as the money that rolls in could help pare down the company’s borrowings, amongst other things.

This is especially so as the group’s total liabilities ballooned to RM2.65 billion as at end-March 2019 — compared with RM766.90 million as at Dec 31, 2018 — while cash and cash equivalents stood at RM289.68 million. The big jump in its borrowing is due mainly to finance the privatisation of Kian Joo.

However, the offer for Can-One’s F&B Nutrition raised some eyebrows.

It is rather surprising that the validity period of the offer letter received by Can-One appeared to be less than 48 hours. According to the announcement with Bursa Malaysia, Can-One received the offer letter last Monday. It stated that the offer remained open for acceptance until 5pm the following day, after which it would automatically lapse.

This means that Can-One’s board had little time to deliberate the offer.

Nonetheless, Can-One’s board deliberated and accepted the offer on time.

The offer, however, the company said is subject to a definitive agreement and other ancillary agreements that will be signed between Can-One and ADCSB within 30 days from the date of acceptance of the offer, with an automatic extension for a further 30 days.

A termination clause was included, stating that no party shall thereafter have any claim, further rights or obligations against the other party in respect of the offer, save for any antecedent breach or breach of any provisions expressly stated to continue to apply after termination of the offer, according to the announcement.

“I am not entirely sure if it is typical for corporate deals to have a turnaround period this short but I suppose most companies would usually take longer than this. In this case, I do not know how they handled or discussed it to get the board to agree on the offer so quickly,” a local fund manager told The Edge Financial Daily.

“What they will do with the money after they sell [off the unit] is another deliberation, if so needed, which may or may not have been done in that same meeting,” the fund manager commented.

A market observer who wished to remain anonymous said it may have been “too good an offer to miss” for Can-One’s board to request for any time extension to the offer.

“Well, RM1 billion is a lot to play with. There many things they (Can-One) can do with the money. They (the board) might just take it first and decide on [the utilisation of proceeds] later. Eventually, they would still have to be answerable to shareholders.”

Pursuant to the term sheet, the consideration took into account the sum of the amount that equals to F&B Nutrition’s normalised and recurring earnings before interest, taxes, depreciation and amortisation for the financial year ending Dec 31, 2019, multiply by 10.5, and less the net debt of F&B Nutrition which will be further defined in the definitive agreements.

Interestingly, Can-One’s share price has rallied over the past six months, climbing to its three-year high of RM3.95 last Friday before finishing the day at RM3.83. Its trading volume has ballooned since January, particularly in the past two months.

Can-One’s share price has soared 93% in five months — from RM1.98 at end-December. Given such big jump, investors who happened to buy at the trough would not only be smiling, but laughing all the way to the bank should they sell their shares now. They could already pocket handsome profit regardless of whether the divestment materialise or not.

Another fund manager who declined to be named sees that the divestment is a far better deal compared to the privatisation of Kian Joo. He said that the privatisation lacks in providing potential earnings accretion to the company in the near term.

“Kian Joo’s profit is not sufficient to cover the additional costs on Can-One’s borrowing to finance the takeover. It is actually negative for Can-One in the short term, and yet its share price kept going up. In other words, [it could be a sign that] something else was brewing.”

Like any corporate proposals, whether it will eventually materialise is anyone’s guess. That said, this might not be that tough a deal to seal for Yeoh, a seasoned hand in corporate deals.

To recap, in August 2016, just months after he has disposed of his King Koil mattress licensing business, with the money in hand Yeoh bought 78.2 million shares in Main Market-listed Aluminium Co of Malaysia Bhd (Alcom) at 61 sen per share or RM47.7 million through his private investment vehicle Towerpack Sdn Bhd.

The share purchase triggered a mandatory takeover offer for all the remaining Alcom shares not already owned by Yeoh at the same price. The takeover bid met with poor response from minority shareholders.

But in less than a year, Yeoh offload over half his stake in Alcom at RM1.12 per share or RM44.44 million in aggregate, nearly double the 61 sen apiece he initially paid for. At present, the 73-year old remains Alcom’s executive director holding a 28.76% stake while he has already recovered a big bulk of his investment cost in the aluminium product manufacturer. Alcom shares were last traded at 50.5 sen on June 4.

When talking about corporate deals that Yeoh has undertaken, Can-One bought a 32% stake in Kian Joo and took control of the aluminium can maker from the See family is certainly a highlight.

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