Tuesday 8 April 2014

Should Canone be allowed to vote in Kian Joo takeover offer?

Kianjoo has on 26 November 2013 received an offer from Aspire Insight to acquire the entire business and undertaking including all of the assets and liabilities of Kian Joo for RM3.30 per Kian Joo shares.

Below are some of the questions that led me to suspecting Aspire Insight is a friendly party to the major shareholders of Canone.

1. Canone holds 32.9% in Kian Joo. If Canone is allowed to vote in an EGM to be held to decide on the takeover of Kian Joo by Aspire Insight, the decision from Canone alone is sufficient to turn the proposal off. In this case, Would Chee Khay Leong, who was the executive director of Canone and had been with the group since 1977 "took such a big risk" to quit from Canone top management position, and together with EPF, made an offer to acquire Kian Joo if he had not obtained the blessing from Canone major shareholders?

2. Being the largest shareholder, Canone has major influence in Kian Joo. Would Chee Khay Leong remain as the COO and executive director of Kian Joo if the takeover move is not friendly, or even hostile to canone?

3. The offer price of RM3.30 per Kian Joo are was merely a premium of 2.8% to the closing price immediate before the offer was made. The offer price is also below Public Invest and TA Securities's target prices of RM3.52/share and RM3.90/share for Kian Joo. Given the sound fundamentals of Kian Joo's business and the seemingly unattractive offer price, why should Canone sell Kian Joo at RM3.30/share?

4. Why would the major shareholders of Canone want to consider disposing its stake in Kian Joo, resulting in creation of rivalry to its business?

5. Apart of the knee jerk effect in Canone share price immediate after the announcement of the takeover, the share price of canone has been drifting lower and lower. Is this not a reflection of disappointment over the offer price for Kianjoo, or market's interpretation that the deal is detrimental to the minority shareholders of Canone? If so, why would Canone be supportive of the takeover?

If the acquirer and major shareholders of Canone are friendly party, is that not consider party acting in concert and should be excluded from voting to decide on the disposal of Kian Joo's shares held by Canone?

What would be Bursa/ SC's decision on this? It is not an easy decision for the regulators as they can't come to a conclusion based on the likelihood how Canone will vote in the EGM, but accordingly to the definition of party acting in concert.


  1. You make some good points. Is Canone the corporate entity the owner of Aspire Insight? Or is it merely Chee Khay Leong? From what I can tell, it seems it is NOT Canone itself, but Chee Khay that is part owner of Aspire. Then presumably whoever is the new CEO of Canone has a duty to vote for or against the deal based on what is best for Canone's shareholders, and NOT simply vote in favor of the deal because of the involvement of Chee Khay.

    Will be interesting to see what they actually do. Do you know when the EGM is scheduled?

    1. You are right that Chee Khay Leong is part owner of Aspire Insight and Canone is not part of Aspire Insight.

      The date of EGM not known yet. Circular to shareholders and notice of meeting will be issued

  2. Is it also not curious that the Board of Kian Joo deemed it fit to arrogantly dismiss a higher, competing offer of $3.74 per share using the pathetic excuse that the Company is not the owner of shares in itself. One would have expected the Board to discharge its obligations to ALL shareholders by engaging with Toyota Tsusho Corp to secure a full or better offer. In the wash up, we have a Board that has decided that an offer of $3.30 is better than a rival offer of $3.74 offer (albeit partial)!! How can investors have confidence in equity markets if transactions are undertaken in a manner that defies commercial logic and seemingly lacks transparency and objectivity?

  3. Talking about the Toyota Tsuho Corp's partial offer of 51%, what would happen to the other 49%? Who gets to be in the 51% that manages to sell at $3.74 (assuming that it did go through). When that happens, my guess is that the remaining 49% would probably get a less attractive offer, since Toyota would have gotten the controlling stake at 51%.

    1. That was the reason why the offer was rejected by Kian Joo's board. It should have been made to shareholders instead of company. Couldn't comprehen why Toyota Tsuho, such a huge company could make such a mistake