Wednesday, November 2, 2011

Kuok Brothers to buy out Jerneh Asia

Jerneh Asia Bhd’s major shareholder, Kuok Brothers Sdn Bhd, has launched a conditional takeover offer of the former in a move that could provide a quicker way to wind up matters at the cash-rich company that has been without a core business since last year.

In a filing with Bursa Malaysia yesterday, AmInvestment Bank Bhd said Kuok Brothers is offering RM1.45 cash per share for all remaining Jerneh Asia shares it does not own and for all new Jerneh Asia shares which may be issued arising from the exercise of the outstanding warrants.

Kuok Brothers, which holds a direct 37.71% stake in Jerneh Asia, is also looking to acquire the remaining 2.96 million warrants for 45 sen apiece.

According to the announcement, Kuok Brothers and persons acting in concert (PACs) hold a combined 41.81% equity interest in Jerneh Asia, comprising 102.02 million shares.

Kuok Brothers and PACs, however, do not hold any warrants.

The PACs are Ophir Holdings Bhd, PPB Group Bhd, Dalex Investments Ltd, Jerneh Asia chairman Datuk Lim Chee Wah, former Jerneh Asia executive director Tan Yew Jin, TYJ Sdn Bhd and Datuk Musa @ Ayob Saad.

Based on a back-of-the-envelope calculation, Kuok Brothers — the family vehicle of tycoon Tan Sri Robert Kuok — will have to fork out about RM207.19 million for the deal.

To boost its offer, Kuok Brothers affirmed that its offer would not fail due to insufficient financial capacity, adding that each shareholder who wishes to accept the offer will be fully paid in cash.

Kuok Brothers’ directors include Kuok Khoon Chen, Kuok Khoon Ho, Kuok Khoon Ean and Kuok Oon Kwong.

The substantial shareholders of Kuok Brothers include PPB Corporate Services Sdn Bhd (10.72%), Kuok Hock Swee and Sons Sdn Bhd (8.84%), Kuok Foundation Bhd (8.4%), Nicka Enterprise Sdn Bhd (8.4%) and Kota Johore Realty Sdn Bhd (6.26%).

Kuok Brothers also noted Jerneh Asia shareholders may face delays in receiving the proceeds from Jerneh Asia’s proposed disposal of its major assets, capital distribution exercise and subsequent winding-up exercise.

“Hence, the offeror intends to undertake the offer to provide Jerneh Asia shareholders and warrant-holders an opportunity to realise their investment earlier compared to the capital repayment and winding-up,” AmInvestment Bank said.

Kuok Brothers also said it does not intend to maintain Jerneh Asia’s listing status.

To recap, Jerneh Asia has been without a core business after selling its 80% equity interest in Jerneh Insurance Bhd to ACE INA International Holdings Ltd last December for RM523.2 million cash.

Jerneh Asia was earlier in talks to acquire Sabah-based property developer Sagajuta (Sabah) Sdn Bhd, whose flagship project is the massive 1Borneo mixed development in Kota Kinabalu.

However, the deal recently fell through after Jerneh Asia and Sagajuta’s 60% shareholder, Generasi Cipta Sdn Bhd, failed to reach a consensus on the terms of the proposed acquisition.

Shortly after the discussions ceased, Sagajuta’s managing director Datuk Raymond Chan Boon Siew surfaced in timber manufacturing firm Harvest Court Industries Bhd after acquiring a substantial 13.85% stake.

Meanwhile, an analyst opined that Kuok Brothers’ offer price for the remaining shares in Jerneh Asia is a fair offer which offers shareholders the convenience of skipping Jerneh Asia’s proposed route of asset disposal and capital repayment, which would involve a lengthy company dissolution process.

Jerneh Asia’s shareholders’ funds stood at RM760.47 million as at June 30, 2011. Subsequent to that date, the company saw the conversion of 42.04 million warrants in July and the payment of RM443.65 million in dividends in August.

According to the analyst’s calculations, Jerneh Asia’s pro forma shareholders funds as at June 30, after incorporating the warrant conversion and deducting the dividend payment, would work out to be about RM384.07 million or RM1.55 per share.

However, the analyst noted that Jerneh Asia’s assets includes a sum of about RM63.86 million invested in associate companies, which works out to be about 25.9 sen per share.

“The investment in associates is less liquid and could take a while to sell. So, Jerneh Asia’s net asset value less its investments in associate works out to be RM1.29 which is below the offer price of RM1.45 per share,” said the analyst.

“There are also some residual assets which may be difficult or sell, as well as liquidation expenses in a winding-up process ... so the amount offered by Kuok Brothers is very fair,” he added.

“The Kuok family has been very transparent in its aim from the start to return Jerneh Asia’s cash back to shareholders as quickly as possible. This is the fastest option after the Sagajuta deal fell through,” he said, adding that the offer was slightly above the estimated capital repayment of between RM1.36 and RM1.41 per share as stated in Jerneh Asia’s circular to shareholders dated June 13.

AmInvestment Bank also noted that Kuok Brothers’ offer of RM1.45 per share was a 7.41% premium over Jerneh Asia’s five-day and one-month volume weighted average price (VWAP) of RM1.35 sen.

The offer price is also a 6.62% premium over Jerneh Asia’s closing price of RM1.36 yesterday, prior to the announcement of the Kuok Brothers’ offer.

As for the warrants, AmInvestment Bank noted that the 45 sen offer for the warrants was calculated based on the difference between the Kuok Brother’s RM1.45 per share offer and the warrants’ RM1 exercise price.

This puts the offer price for the warrants at a 9.76% premium over its five-day VWAP, 12.5% premium over the one-month VWAP and a 9.76% premium over the warrant’s last closing price of 41 sen yesterday.

Written by Chua Sue-Ann,

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