PMI ... Sep11

The proposed privatisation of Pan Malaysian Industries Bhd (PMI) could help Tan Sri Khoo Kay Peng to consolidate his interests in Malayan United Industries Bhd (MUI). PMI holds a 10.27% stake in MUI.

PMI had received a takeover offer from a consortium of three companies to acquire the remaining 558 million shares or 44.17% stake they do not own in PMI at an offer price of 4.5 sen per share.

The consortium comprises Soo Lay Holdings Sdn Bhd with 8.6% equity interest, Hong Kong-based Norcoss Ltd (27.48%) and Cherubim Investment (HK) Ltd (CIL-19.69%) in PMI. Khoo is the controlling shareholder of all three companies.

The joint offerors plan to delist PMI if it is unable to comply with the shareholding spread requirement. The takeover offer needs the approval of the Securities Commission and Bursa Malaysia.

Still, market observers said the offer price of 4.5 sen is low compared with the standard 30% premium for takeover exercises in the past. PMI was trading at 4.5 sen when the offer was made on Aug 26 2011.

It is also important to note that the counter has risen as high as seven sen early 2011. The deal could be foiled as investors could hold onto the shares and force the consortium to offer a higher price.

The proposed privatisation of PMI is seen as a move by Khoo to gain a bigger controlling stake in MUI, in which PMI holds a 10.27% stake. Should the privatisation succeed, Khoo would increase his indirect shareholding in MUI from 49.93% currently to 55.23%.

Apart from that, there is little reason for Khoo to take PMI private. PMI has been a loss-making company for many years and it does not have many assets besides Menara PMI. PMI has been making losses since FY06. For FY11 ended March 31, it posted a net loss of RM300,000 on the back of RM4.7 million in revenue.

As at June 30, it had RM131.52 million in borrowings while cash stood at only RM608,000. Its net assets stood at RM179.35 million or 2.12 sen per share.

At 4.5 sen per share, Khoo would need to pay approximately RM25.1 million to obtain the remaining shares of PMI. That is a small price to pay to consolidate his interests in MUI, where most of his assets are placed.

MUI has businesses in retailing, hotel, food and confectionery, financial investments and travel services. It owns retailers Metrojaya Bhd and Laura Ashley Holdings plc, which is listed on the London Stock Exchange.

MUI posted RM811,000 in net profit for 1HFY11 ended June 30 on the back of RM443.26 million in revenue, while net assets per share stood at 32.68 sen.