Iconic major shareholder holds the upper hand

On 11 March, major shareholder, Tong Jun Kian, announced a mandatory unconditional cash offer for all issued shares of Iconic Holdings (IHL) after having acquired an additional 10.21% stake from Akzo Nobel Coatings via a married deal, increasing his total shareholding interest, together with the relevant persons, in Iconic to 57.12%. The shares are being offered at $0.10, an approximate 20% discount to $0.125, the last transacted price on 9 March.

As of March, there are 111,806,820 shares in issue. Effectively, Mr Tong has valued the company at $11.18 million. For this takeover, he just need to pay $4.8 million for the 42.8% stake which he do not own. IHL is currently a shell company because it completed the sale of its surface coatings business to The Sherwin-Williams Company in July 2008. With the disposal, IHL does not have a core business. Its remaining operating business comprises principally the sale and distribution of adhesives and chemicals carried out by its subsidiary, Hernon (Asia) Pte Ltd. Based on the HY2008 Announcement, the IHL Group’s assets comprise substantially of cash as at 31 December 2008. In order to continue its listing status, IHL has 12 months from the disposal of its core business (which was on 31 July 2008) to acquire a new business.

Since the acquisition of a new business is unlikely to materialise by July 2009, Mr Tong has decided that he will buy over the whole company and delist it. Is this a good offer for the current shareholders? Based on its balance sheet for HY2008, IHL has a current asset of $23 million, of which $18.6 million is cold hard cash. Its liability is neligible. So, if we only take the cash into consideration, the value for each share should be about $0.16. Clearly this takeover offer greatly benefits Mr Tong, as he is trying to pay 62.5 cents for each dollar backing.

Despite the unattractiveness of this offer, shareholders do not have better choices as the daily trading volume of the shares is very low and it is time consuming to wait for the company to delist on its own after July 2009.

Beauty China turns ugly duckling

To say that it has been a roller coaster ride for the shareholders of Beauty China (BC) in the past 2 days is a gross understatement. No retail investor could have been prepared for the extreme volatility that we have witnessed on BC’s share price. On the morning of 2nd March, BC called for a trading halt pending announcement. BC closed at $0.37 on the previous Friday (27th Feb). The much-awaited announcement that was made on Tuesday noon disclosed that the founder, Mr Wong, was in discussion with some parties regarding the sale of his 38.7% stake.

At first glance, it looks like good news for the shareholders as some parties are interested in acquiring a stake in BC, which was previously a market darling before this downturn. However, it occurred to me that assuming the party was to successfully take control of Mr Wong’s 38.7% stake, it would also need to make a general takeover offer for all shares it does not own at the similar price it paid. If the ultimate intention of the other party is to takeover the whole company, then it seems odd that only Mr Wong alone is in negotiations and not the whole board of directors.

My belief that there was something fishy behind this deal was further reinforced when there was no spike in the share price after the trading halt was lifted. Investors react negatively and the huge wave of selling caused the share price to close at $0.11. It was down 70.3% on just half day of trading. If there is a chart for the most spectacular collapse of share price in the shortest period of time, BC will definitely rank on top. After the market close, BC came out to announce that some of Mr Wong’s shares were sold due to margin call. With that announcement, we finally had a clearer picture what this was all about.

Currently, there is no rule that requires the disclosure of shares that are pledged. Seriously, the authorities should look into this issue and consider making the necessary changes to protect the minority shareholders. This is not the first time such thing has happened and it wont be the last time. A similar incident occurred in Jade Technologies last year.