Then, whammo! Both counters were given short shrift and dumped summarily by investors who see the reorganisation and purchases as intrinsically bad!
While investors acted negatively, some analysts however felt TdC’s proposals were fair to the company.
TdC’ shares slumped a massive 14 sen to close at 63 sen yesterday. Trading in its shares resumed yesterday after being suspended since last Friday. TdC was the most heavily traded stock with 107.9 million shares done.
Time Engineering's price melted down 8.5 sen to 43.5 sen.
An analyst said the market may be viewing the company’s announcement unfavourably due to the dilution impact from the issuance of new shares to pay for the acqusitions.
“There is also lack of clarity on whether the acqusitions are earnings accretive,” he said.
Another concern was the related party nature of the transactions, as the companies being injected into TdC belong, in part, to TdC’s CEO Afzal Abdul Rahim.
However, it should be noted that Afzal as well as Khazanah Nasional Bhd (the latter also partly owns some of the assets being injected into TdC) will not be voting on the deal, leaving minorities the full power to decide on the matter.
While the deal will make Afzal the single largest shareholder of TdC, this has been a stated intention of Khazanah in its earlier announced divestment plan of TdC.
“Afzal is getting paid mostly in shares rather than cash. This suggests that is in this for the long haul,” said a dealer.
TdC announced on Monday that it proposed to buy three companies for RM339mil. The three companies were AIMS Group, which would be acquired for RM128mil, of which RM38.4mil would be in cash; Global Transit Communications Sdn Bhd (GTC) for RM106mil in stock and Global Transit Ltd (GTL) for RM105mil, of which RM52.5mil would be in cash and the balance in shares.
The acquisitions would be financed by RM90.9mil in cash and RM248.1mil in shares, and is expected to be completed in six months. The analyst viewed the acquisition price of the deals as fair, citing that these companies were in fast growing industries.
TdC is paying between 15 times and 23 times historical price earnings for GTC and AIMS, while it is taking over GTL (the owners of a 10% stake in the Trans-Pacific Unity Cable connecting Japan and the United States) for RM105mil.
“Its not exactly cheap, but these companies are growing fast. In the case of GTC, it recorded a loss of RM79,613 for the year ended Dec 31, 2008. For the nine months to Sept 30, 2010, it made RM5.11mil. AIMS is also growing. [ This is good if sustainable]. If these companies continues to grow at a 20% rate over the next few years, there may be no dilution impact at all,” the analyst said. [What a long haul!]
Under the capital restructuring, TdC announced a capital repayment of 2 sen per share, or a total of RM50.6mil.
On the proposed share consolidation, five shares of 10 sen each would be consolidated to one share of 50 sen each.
It means that if you currently have 5 lots of 1000 shares at RM1 par,then the conversion will firstly result in you having 5 lots of 1000 shares at 10 sen par. Next, you will have to undergo a conversion exercise where every 5 new shares you have will be consolidated into one 50 sen share,effectively rendering you to own 1 new lot of 1000 shares with 50 sen par. Is it worth it?
“The share consolidation is actually positive as it shows that management wants to institutionalize the shares,” said a fund manager.
With the consolidation, the issued and paid up capital of the company remains the same at RM253.08mil, while the total number of shares would be reduced five times lower to 506.16 million shares of 50 sen each.
The dealer said that with TdC consolidating its assets to create Malaysia’s and in future Asean’s prime wholesale data and backhaul network, TdC would be able to bundle together attractive packages at competitive prices for both domestic and regional telco companies and services providers.
The dealer added that with the onset of increased data traffic driven by new mobile devices and technology upgrades, demand for data would only grow stronger. He said the deals would position TdC on solid footing to benefit from the trend.
Looks like the people in the know are in this leverage buy-out and indicative that Khazanah is actually divesting to favourable parties.
Will the new owners be able to bring in potential business as it projected?
That I want to see.
