QL’s bid for Lay Hong: Money well spent?

PETALING JAYA: QL Resources Bhd, which triggered the 33% mandatory general offer (MGO) threshold for Lay Hong Bhd with its purchase of shares in the open market, may have overspent in its bid to take Lay Hong private, bringing its actions into question.
Its move to first launch a voluntary general offer (VGO) for Lay Hong and later start to pick up shares in the open market brings to question as to whether its move thus far is in the best interest of its minority shareholders.
"QL could have initially increased its stake in Lay Hong without launching a takeover offer for Lay Hong, but it went ahead with the corporate exercise," an analyst, who declined to be named told SunBiz yesterday.
QL had been consistently accumulating Lay Hong shares from Sept 24 to Oct 3, 2014 for between RM3.18 and RM3.50 per share. Its offer for Lay Hong is at RM3.50.
The analyst opined that the privatisation of Lay Hong, which may be successful eventually, may not benefit QL fully due to Lay Hong's non-diversified business operations.
"QL management has to think about whether they'd be able to get certain amount of return on investment, if not it would not be a good deal," he added. A day before QL's VGO for Lay Hong its shares were trading at RM2.66 a piece.
QL has to fork out some RM118 million for the remaining 67% stake it does not own in Lay Hong. Yesterday it triggered the MGO obligation in Lay Hong after having increased its shareholding in Lay Hong to more than 33% versus 26.81% prior to the takeover announcement on Sept 24.
"As a result of the recent purchases of 3.46 million Lay Hong shares made by QL from Sept 24 to Oct 7, 2014, the shareholding of QL in Lay Hong has exceeded 33% of the issued and paid-up share capital of Lay Hong yesterday. Pursuant thereto, QL has triggered the MGO obligation under the Malaysian Code on TakeOvers and Mergers, 2010," QL said in a filing with Bursa Malaysia yesterday.
However, QL said that the terms and conditions of the offer will remain the same under the MGO.
QL remains to be the second largest shareholder of Lay Hong, while the Lay Hong family still controls the most with 44%.
QL first announced a conditional voluntary takeover offer for Lay Hong to take the latter private on Sept 24 by acquiring all the shares of RM1 each in Lay Hong not already held by the offeror for RM3.50 per offer share.
The analyst believes the reappointment of a director of QL to Lay Hong board is a way to address the tussle between QL and the Lay Hong family.
"It (QL's take over of Lay Hong) will neither benefit QL nor the Lay Hong family, QL's representative has to return to the board of Lay Hong," he noted.
QL yesterday closed 2 sen or 0.59% higher at RM3.42 with 640,300 shares traded while Lay Hong closed 1 sen or 0.28% lower yesterday at RM3.50 with 572,000 shares traded.