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.