Sep 18, 2015 - Acquisition contemplated by the SPA (âClosingâ), LMB shall purchase from ... the fifth (5th) business
LAFARGE MALAYSIA BERHAD (“LMB” OR “COMPANY”) PROPOSED ACQUISITION OF THE ENTIRE EQUITY INTEREST IN HOLCIM (MALAYSIA) SDN BHD BY LMB OR ITS NOMINATED WHOLLY-OWNED SUBSIDIARY FROM PT HOLCIM INDONESIA TBK FOR A CASH CONSIDERATION OF RM330.0 MILLION (“PROPOSED ACQUISITION”)
1.
INTRODUCTION On behalf of the Board of Directors of LMB (“Board”), Maybank Investment Bank Berhad (“Maybank IB”) wishes to announce that LMB entered into a conditional share purchase agreement with PT Holcim Indonesia Tbk (“Holcim Indonesia”) for the Proposed Acquisition (“SPA”) today. LMB and Holcim Indonesia are collectively referred to as “Parties”.
2.
DETAILS OF THE PROPOSED ACQUISITION 2.1
Background information on the Proposed Acquisition The Proposed Acquisition involves the acquisition by LMB or its nominated whollyowned subsidiary of the entire equity interest in Holcim (Malaysia) Sdn Bhd (“HMSB”) from Holcim Indonesia, subject to the terms and conditions of the SPA.
2.2
Salient terms of the SPA The salient terms of the SPA include, among others, the following: 2.2.1
Sale and purchase of the shares Subject to the terms and conditions of the SPA, at the closing of the Proposed Acquisition contemplated by the SPA (“Closing”), LMB shall purchase from Holcim Indonesia, and Holcim Indonesia shall sell to LMB as legal and beneficial owner, all of the shares in HMSB (“HMSB Shares”) held by Holcim Indonesia, free and clear of all encumbrances and together with all rights and benefits attaching thereto.
2.2.2
Purchase consideration (i)
Subject to item (ii) below, the aggregate consideration payable in cash at the Closing by LMB to Holcim Indonesia for the sale of all of the HMSB Shares is RM330.0 million (“Purchase Consideration”), which shall be payable in the currency of United States Dollars (“USD”) in accordance with the terms of the SPA.
(ii)
Adjustment of Purchase Consideration: (a)
The Purchase Consideration shall be adjusted if, between the date of the SPA and the Closing Date (as defined in Section 2.2.3): (aa)
there is a diminution in the Working Capital (as defined herein) of more than five per centum (5%) compared to the Working Capital for the financial period ended (“FPE”) 31 May 2015; or
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(bb)
the Total Net Debt (as defined herein) increases by more than five per centum (5%) compared to the Total Net Debt for the FPE 31 May 2015.
(b)
In this connection and no later than seven (7) days prior to the Closing Date, Holcim Indonesia shall provide LMB with copies of HMSB’s latest consolidated management accounts, for the FPE the month immediately prior to the Closing Date and based on the said management accounts the Parties shall ascertain and agree whether any diminution in the Working Capital pursuant to item (ii)(a)(aa) and/or increase in the Total Net Debt pursuant to item (ii)(a)(bb) has occurred (compared to the Total Net Debt for the FPE 31 May 2015), and its amount. In the event of any disagreement as to whether any such diminution in the Working Capital or increase in the Total Net Debt has occurred, such determination shall be made by an entity within the Malaysian PricewaterhouseCoopers network (acting as an expert), after taking into account written submissions from Holcim Indonesia and LMB and whose determination shall be final and binding on the Parties.
(c)
If there is a diminution in the Working Capital of more than five per centum (5%) pursuant to item (ii)(a)(aa), the Purchase Consideration shall be decreased by an amount equal to the diminution.
(d)
If the Total Net Debt increases by more than five per centum (5%) compared to the Total Net Debt for the FPE 31 May 2015 pursuant to item (ii)(a)(bb), the Purchase Consideration shall be decreased by an amount equal to the excess debt (i.e. the amount in excess of the Total Net Debt for the FPE 31 May 2015).
(e)
Notwithstanding anything in the SPA, where HMSB has paid any dividend post 31 May 2015, the Purchase Consideration shall be reduced by the amount paid.
For the purpose of Section 2.2.2(ii), “Working Capital” and “Total Net Debt” have been given the following meaning in the SPA: “Working Capital” means the consolidated net working capital of HMSB and its subsidiaries (“HMSB Group”) that is used in their dayto-day trading operations, calculated as their current assets minus their current liabilities. For the purpose herein, “current assets” shall exclude cash and “current liabilities” shall exclude bank borrowings; and “Total Net Debt” means, with respect to the HMSB Group, the aggregate of all: (a)
borrowings and trade facilities (including but not limited to term loan, short-term loan, hire-purchase, bankers acceptance, overdraft and other financing facilities) together with any interest payable thereon;
(b)
amount owing to directors or shareholders together with any interest payable thereon; and
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(c)
amount owing to related parties together with any interest payable thereon,
less the aggregate of all cash (excluding any unearned income and encumbered cash/deposits) and fixed deposits. 2.2.3
Closing Unless the SPA shall have been terminated pursuant to the terms of the SPA, the Closing shall take place on: (i)
the fifth (5th) business day following the satisfaction (or waiver by LMB) of the conditions set forth in Section 2.2.4 below; or
(ii)
30 November 2015,
whichever is later, or at such other date as may be agreed upon by the Parties (“Closing Date”). 2.2.4
Conditions to the Closing The obligation of the Parties to effect the Closing under the SPA and to perform their other obligations thereunder is subject to the following conditions: (i)
the delivery by Holcim Indonesia to LMB of the following approvals, authorisations or notifications (“Seller Conditions”): (a)
the approvals of the Board of Directors and Board of Commissioners of Holcim Indonesia for the sale of all of the HMSB Shares by Holcim Indonesia to LMB and the transactions contemplated by and on the terms set out in the SPA;
(b)
the approvals, consents, permissions and/or waivers required from, among others, the financier of HMSB, as listed in Schedule II of the SPA, and where any such approvals, consents or waiver is subject to any condition(s), such condition(s) are acceptable to LMB;
(c)
the written notification by Holcim Indonesia to Ministry of International Trade and Industry of Malaysia (“MITI”) in respect of the sale of all of the HMSB Shares to LMB pertaining to the manufacturing licences issued by MITI pursuant to the Industrial Co-ordination Act, 1975; and
(d)
the approval of any other relevant governmental authorities in respect of the sale of all of the HMSB Shares by Holcim Indonesia to LMB, where applicable;
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(ii)
the delivery by LMB to Holcim Indonesia of the following approvals or authorisations (“Purchaser Conditions”): (a)
the approvals of the shareholders of LMB and the Board for the purchase of all of the HMSB Shares by LMB from Holcim Indonesia and the transactions contemplated by and on the terms set out in the SPA; and
(b)
the approval of any relevant governmental authority in respect of the purchase of all of the HMSB Shares by LMB from Holcim Indonesia, where applicable,
(collectively, “Conditions”). The Conditions are to be satisfied in a manner acceptable to LMB by 16 November 2015 or such extended period(s) as may be mutually agreed upon in writing between the Parties (“Cut-Off Date”), failing which the rights and obligations of the Parties under the SPA shall forthwith lapse and the SPA shall be terminated in accordance with Section 2.2.5 below. Each Party shall have the right to waive any of the Conditions to the extent that the fulfillment of such Conditions is not required as a matter of law for the completion of the sale and purchase of all of the HMSB Shares and to the extent that such Conditions is for the sole benefit of such Party. 2.2.5
Termination The SPA may be terminated by the Parties, in the following manner, upon occurrence of the following termination events: (i)
(ii)
(iii)
Holcim Indonesia shall have the unilateral and discretionary right to terminate the SPA: (a)
in the event LMB has not fulfilled and delivered the Purchaser Conditions to Holcim Indonesia by the Cut-Off Date and the Purchaser Conditions have not been waived by Holcim Indonesia; and
(b)
if LMB fails to deliver the Purchase Consideration to Holcim Indonesia in accordance with the terms in the SPA, among others, together with proof of evidence, reasonably satisfactory to Holcim Indonesia that the execution, delivery and performance of the SPA have been duly authorised.
LMB shall have the unilateral and discretionary right to terminate the SPA: (a)
in the event Holcim Indonesia has not fulfilled and delivered the Seller Conditions to LMB by the Cut-Off Date and the Seller Conditions have not been waived by LMB; and
(b)
if Holcim Indonesia fails to deliver to LMB any of the completion deliverables in accordance with the terms in the SPA, together with proof of evidence, reasonably satisfactory to LMB that the execution, delivery and performance of the SPA have been duly authorised.
Each of the Parties has a reciprocal right to terminate the SPA if the Closing does not occur on or prior to 31 December 2015, subject to such Party not having defaulted in any of its obligations under the SPA. 4
2.3
Basis, justification and manner of satisfaction for the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing-seller basis after taking into consideration, among others, the following: (i)
the fair market value (“FMV”) range of HMSB from RM307 million to RM351 million as at 31 May 2015 as reported by PricewaterhouseCoopers Capital Sdn Bhd (“PwC Capital”) in its letter dated 14 September 2015 (“Independent Valuation Letter”) which is based on: (a)
the income approach, being the primary approach to appraise the FMV range of HMSB, which takes into consideration the expected cash flows of the HMSB Group from 1 June 2015: (aa)
up to the financial year ending (“FYE”) 31 December 2019 for cement and ready-mixed concrete businesses and terminal values for the said businesses; and
(bb)
up to the end of the concession and contract periods for aggregates and fly ash businesses in 2029 and 2030 respectively,
after taking into consideration the medium to long-term performance of the HMSB Group including the movement in selling prices, cost of raw materials and contracted sales for particular businesses, the historical earnings before interest, tax, depreciation and amortisation (“EBITDA”) of the said businesses and future outlook based on the prevailing market conditions; and
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(b)
the market approach, being the secondary approach as a cross check to the primary approach, which takes into consideration the comparative analysis based on the enterprise value (“EV”)/EBITDA, price to earnings (“P/E”) and EV/tonne of installed capacity of the selected comparable companies as at 31 May 2015 which are set out below: Market multiples
EV/ EBITDA (times)(1)
P/E (times)(1)
EV/tonne of installed capacity (USD)
Local comparables: Tasek Corporation Berhad LMB Average
10.5 12.4 11.4
14.6 22.6 18.6
199 173 186
Regional comparables: PT Indocement Tunggal Prakarsa Tbk Holcim Indonesia PT Semen Indonesia (Persero) Tbk Holcim Philippines, Inc Lafarge Republic, Inc Siam City Cement PCL Vicem Ha Tien Joint Stock Company Average
11.0 9.1 11.4 12.0 7.9 13.4 9.8 10.7
17.2 19.3 16.4 23.0 14.1 20.1 -(2) 18.3
320 161 250 279 N/A 221 N/A 246
10.8
18.4
229
9.5(3)
17.9(4)
88(5)
Average of local and regional comparables (Source: Independent Valuation Letter)
HMSB Notes: N/A (1)
(2)
(3)
(4)
(5)
(ii)
Not available Based on the average monthly multiples for the past five (5) years preceding 31 May 2015 Not meaningful due to insufficient observations over the past five (5) years preceding 31 May 2015 Based on the implied EV of RM391.6 million taking into consideration the Purchase Consideration, and HMSB’s minority interest, borrowings, and cash and bank balances, among others, amounting to RM61.6 million (“Implied EV”) over the normalised EBITDA of HMSB of RM41.4 million based on the trailing twelve (12) months up to 31 May 2015 Based on the Purchase Consideration over the normalised comprehensive income attributable to the shareholder of HMSB of RM18.4 million based on the trailing twelve (12) months up to 31 May 2015 Based on the Implied EV of USD104.4 million, equivalent to RM391.6 million based on the exchange rate of USD1.00:RM3.75, over the cement plant’s annual installed production capacity of HMSB of 1.19 million metric tonne (“MT”) as at 31 May 2015. HMSB only owns grinding station as compared to the selected local and regional comparable companies which own integrated cement plants
the prospects of the Malaysian construction sector as well as the prospects of the HMSB Group and the enlarged LMB Group, and the earnings potential of the HMSB Group after considering item (i) above.
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In justifying the Purchase Consideration, the Board has taken into consideration, among others, the following: (i)
the Purchase Consideration of RM330.0 million is within the range of HMSB’s FMV from RM307 million to RM351 million as reported by PwC Capital in its Independent Valuation Letter;
(ii)
the implied EV/EBITDA and P/E multiples of HMSB of 9.5 times and 17.9 times respectively which are below the market multiples of the selected local and regional comparable companies whilst HMSB’s EV/tonne of installed capacity of USD88 is at a discount as compared to the said comparable companies as HMSB only owns grinding station as compared to the said comparable companies which own integrated cement plants; and
(iii)
strategic rationale for the Proposed Acquisition which will create synergies and increase the cement plants’ annual installed production capacity of the enlarged LMB Group from 12.95 million MT to 14.14 million MT as elaborated further in Section 5 of this Announcement.
LMB or its nominated wholly-owned subsidiary shall pay the Purchase Consideration to Holcim Indonesia at the Closing in full and there is no arrangement for payment to be made on a deferred basis. 2.4
Source of funding The Purchase Consideration shall be satisfied in cash to be financed via a combination of internally generated funds and/or bank borrowings, the proportions of which are yet to be finalised at this juncture.
2.5
Liabilities to be assumed There are no liabilities, including contingent liabilities and guarantees, to be assumed by the Company or its nominated wholly-owned subsidiary pursuant to the Proposed Acquisition, save for the existing liabilities including contingent liabilities and guarantees of the HMSB Group.
2.6
Additional financial commitment The Company does not expect to incur any material financial commitment to put the business operations of the HMSB Group on stream as the businesses of the HMSB Group are ongoing as at 17 September 2015, being the latest practicable date prior to this Announcement (“LPD”).
2.7
Original cost of investment Holcim Indonesia’s original cost of investment in HMSB is USD36,894,123 (equivalent to approximately RM131.6 million*) which was incurred on 18 May 2009. Note: *
3.
Based on the exchange rate of USD1.00:RM3.5675, being the middle rate as quoted by Bank Negara Malaysia as at 5.00 p.m. on 18 May 2009
BACKGROUND INFORMATION ON HMSB HMSB was incorporated in Malaysia under the Companies Act, 1965 on 15 March 1990 as a private limited company under the name of Tenggara Cement Manufacturing Sdn Berhad. On 8 May 2002, it changed its name to its present name.
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As at the LPD, the authorised share capital of HMSB is RM20,000,000 comprising 20,000,000 HMSB Shares, of which 10,450,003 HMSB Shares have been issued and are fully paid-up. HMSB is a wholly-owned subsidiary of Holcim Indonesia. As at the LPD, the subsidiaries of HMSB are as follows: Country of incorporation
Effective equity interest (%)
Holcim Marketing (Malaysia) Sdn Bhd
Malaysia
100.0
Marketing, trading manufacturing of cement related products
ISB Kuari Kota Tinggi Sdn Bhd
Malaysia
100.0
Quarrying and trading of granite and quarry products
Geocycle Malaysia Sdn Bhd
Malaysia
70.0
Trading of any type of cementitious materials for cement or concrete use
Name of company
Principal activities and and
HMSB does not have any associated company. As at the LPD, the directors of HMSB are Mahanama Kumara Bandara Ralapanawa, Daniel Bach, Tan Mun Hwoon and Farida Helianti Sastrosatomo. HMSB is principally involved in the manufacturing and sale of cement. Based on the latest audited consolidated financial statements of HMSB for the FYE 31 December 2014, HMSB registered a comprehensive income attributable to its shareholder of RM15.6 million while the net assets (“NA”) of HMSB as at 31 December 2014 was RM119.6 million.
4.
BACKGROUND INFORMATION ON HOLCIM INDONESIA Holcim Indonesia was established in Indonesia under the Deed of Establishment of the Company on 15 June 1971 as a public limited company under the name of PT Semen Cibinong Tbk. It was subsequently listed on the Jakarta Stock Exchange (now known as Indonesia Stock Exchange) in 1977. In 2005, it changed its name to its present name. As at the LPD, the authorised share capital of Holcim Indonesia is Rp15,325,800,000,000 comprising 30,651,600,000 shares of Rp500 each, of which 7,662,900,000 shares have been issued and are fully paid-up. As at the LPD, the substantial shareholders and their shareholdings in Holcim Indonesia are as follows: Direct Name
Country of incorporation
Indirect
No. of shares (‘000)
%
No. of shares (‘000)
%
Holderfin B.V.
Netherlands
6,179,613
80.64
-
-
LafargeHolcim Ltd (previously known as Holcim Ltd)
Switzerland
-
-
6,179,613
80.64
As at the LPD, the Board of Commissioners of Holcim Indonesia comprises of Kuntoro Mangkusubroto, Ian Thackwray, Daniel Bach, Patrick McGlinchey, Hendra Kartasasmita, Kemal Azis Stamboel and John Daniel Rachmat. As at the LPD, the Board of Directors of Holcim Indonesia comprises of Gary Schutz, Kent Carson, Jan Kunigk, Derek Williamson, Wiwik Wahyuni, Farida Helianti Sastrosatomo and Francois Goulut. 8
Holcim Indonesia is a cement-based building materials and service provider with operations in two (2) countries, Indonesia and Malaysia, via the HMSB Group, supplying the needs of the extensive domestic retail and homebuilding market as well as commercial and infrastructure projects.
5.
RATIONALE AND BENEFITS OF THE PROPOSED ACQUISITION Following the completion of the merger of Lafarge S.A., being the then ultimate holding company of LMB, and Holcim Ltd, now known as LafargeHolcim Ltd (“LafargeHolcim”), being the ultimate holding company of HMSB, pursuant to the completion of a public exchange offer of new shares by Holcim Ltd for Lafarge S.A. shares on 10 July 2015, LafargeHolcim emerged as the ultimate holding company of LMB. As a result, the Proposed Acquisition is proposed to facilitate the consolidation of the businesses of manufacturing and sale of cement, ready-mixed concrete and other related building materials of LafargeHolcim in Malaysia under LMB. LMB and its subsidiaries (“LMB Group”) are a group of companies in Malaysia and Singapore whose core businesses are in the manufacturing and sale of cement, ready-mixed concrete and other related building materials. The HMSB Group on the other hand is one of the leading building materials providers in Johor and the Southern Peninsular of Malaysia with its main base in Pasir Gudang, Johor. The Proposed Acquisition would increase the cement plants’ annual installed production capacity of the enlarged LMB Group from 12.95 million MT to 14.14 million MT. The Proposed Acquisition is expected to deliver synergies through the following: (i)
operational efficiencies realised from the selection and implementation of best practices, including in logistics, distribution, procurement, information technology and energy consumption;
(ii)
cost synergies realised from the increase in economies of scale and bargaining power, reduction or elimination of duplicative functions and the consolidation of corporate overhead; and
(iii)
capital expenditure synergies realised through selection and adoption of best practices on maintenance capital expenditures and higher efficiency on expansion capital expenditures.
The realisation of the above synergies is expected to contribute positively to the future earnings and cash flows of the enlarged LMB Group following the completion of the Proposed Acquisition. Based on the above and barring any unforeseen circumstances, the Board believes that the Proposed Acquisition would contribute positively to the future prospects and shareholders’ value of LMB in the long term.
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6.
INDUSTRY OVERVIEW AND PROSPECTS OF HMSB AND THE ENLARGED LMB GROUP 6.1
Overview and outlook of the Malaysian Economy The Malaysian economy recorded a stronger growth of 6.0% in 2014 (2013: 4.7%), driven primarily by the continued strength of domestic demand and supported by an improvement in external trade performance. Net exports turned around to contribute positively to growth after seven years of negative contribution, as Malaysia benefitted from the recovery in the advanced economies and the sustained demand from the regional economies. While the growth in private domestic demand remained strong, public sector expenditure registered slower growth, consistent with the Government’s fiscal consolidation efforts. Private consumption grew by 7.1% in 2014, supported by favourable income growth and stable labour market conditions. Private consumption growth was also supported by the targeted Government transfers to low- and middle-income households. These partially mitigated some of the dampening effects on household spending growth from the higher cost of living following adjustments to administered prices. Public consumption recorded a slower growth rate of 4.4% given the more moderate increase in Government expenditure on supplies and services, which was in line with expenditure rationalisation initiatives announced towards the end of 2013. Despite a challenging external environment, the Malaysian economy is expected to register steady growth of 4.5% - 5.5% in 2015, supported mainly by sustained expansion in domestic demand amid strong domestic fundamentals and a resilient export sector. Domestic demand will continue to anchor growth in 2015, driven by private sector spending. After registering five consecutive years of above-average growth rates, private consumption is expected to grow by 6.0% in 2015. While the implementation of the GST in April and lower earnings in the commodity-related sectors are expected to affect spending, this will, however, be partially offset by higher household disposable incomes from lower fuel prices, the favourable labour market conditions and the Government measures to assist low- and middle-income households. (Source: Bank Negara Malaysia Annual Report 2014)
6.2
Overview and prospects of the Malaysian construction sector The construction sector continued to expand at a double-digit rate, owing mainly to stronger growth in both the residential and non-residential sub-sectors, with further support from the infrastructure projects under the civil-engineering sub-sector. The construction sector registered a higher growth of 11.6% during the year (2013: 10.9%), owing mainly to stronger growth in both the residential and non-residential subsectors. The robust growth in the residential sub-sector was attributed to continued progress in high-end housing projects in Johor, Klang Valley and Penang, while construction activities in the non-residential sub-sector were supported by commercial and industrial projects. The civil engineering sub-sector provided further support to the sector, underpinned by existing and new infrastructure projects. The construction sector is expected to continue to record high growth, albeit at a more moderate pace in 2015. After several years of robust growth, activity in the residential sub-sector is expected to increase at a more moderate pace due to lower housing approvals and property launches. Nonetheless, growth in the non-residential subsector is projected to be sustained, amid higher construction activity for industrial and commercial buildings. New and existing multi-year civil engineering projects, particularly in the transport and utility segments, will continue to provide additional support to the sector. (Source: Bank Negara Malaysia Annual Report 2014)
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The construction sector is estimated to expand by 10.3% per annum during the Plan period. This is attributed to continued civil engineering works and a growing residential subsector to fulfil the demand for housing, particularly from the middle-income group. Demand for affordable housing by the low-income group will also remain favourable, which will be supported by several Government initiatives, such as Program Perumahan Rakyat 1Malaysia (PR1MA), Rumah Idaman Rakyat and Rumah Mesra Rakyat. Other subsectors such as civil engineering and non-residential will remain robust in line with the development of major projects such as the Tun Razak Exchange, KL118 Tower, Refinery and Petrochemicals Integrated Development (RAPID), and the Pan-Borneo Highway. The construction sector is becoming more important due to higher demand for modern and efficient infrastructure in line with the aim of becoming an advanced nation. The construction sector is expected to grow at 10.3% per annum with a contribution of RM327 billion (5.5%) to GDP by 2020. The Government will introduce the Construction Industry Transformation Programme (CITP), 2016-2020, to propel the industry forward and meet market demand. (Source: Eleventh (11th) Malaysia Plan 2016-2020)
6.3
Prospects of HMSB and the enlarged LMB Group As set out in Section 6.2 above, the outlook of the Malaysian construction sector is expected to remain positive in 2015 and the ensuing years driven mainly by the continued demand and progress of the residential subsector and civil engineering works for key infrastructure projects, as well as on-going and future commercial and residential development. The LMB Group upon completion of the Proposed Acquisition will continue to focus on product quality and providing solutions to customers whilst improving its efficiency in the overall operations. In view of the above, the Board is of the view that the prospects of HMSB and the enlarged LMB Group will remain positive and is not aware of any risk factors arising from the Proposed Acquisition other than the risk factors set out in Section 7 of this Announcement. Further, given the expected synergies and the increase in the annual installed production capacity of the enlarged LMB Group pursuant to the Proposed Acquisition as set out in Section 5 of this Announcement, the Board envisages the prospects of HMSB and the enlarged LMB Group to be favourable.
7.
RISK FACTORS The Board does not foresee any material change to the risk profile of the enlarged LMB Group as a result of the Proposed Acquisition as both HMSB and the LMB Group is principally involved in the building materials business. However, below are the additional risks in relation to the Proposed Acquisition which are by no means exhaustive: 7.1
Non-completion of the Proposed Acquisition The Proposed Acquisition is subject to completion risk conditional upon the fulfilment and/or waiver (as the case may be) of the Conditions or occurrence of any of the termination events specified in Section 2.2.5 of this Announcement. There can be no assurance that the Conditions will be satisfied and/or waived (as the case may be) or any of the termination events may occur. Nevertheless, the Company shall use its best endeavours to fulfil all the Conditions in a timely manner and mitigate the occurrence of any of the termination events which are within its control to ensure the completion of the Proposed Acquisition.
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7.2
Integration risk One of the rationale of the Proposed Acquisition is the synergistic benefits that are expected to be derived from the combination of the businesses of the LMB Group and the HMSB Group as set out in Section 5 of this Announcement. Upon completion of the Proposed Acquisition, the existing business functions, systems and personnel of HMSB may be integrated into those of LMB. There can be no assurance that: (i)
the accounting and risk management policies of HMSB are similar to those of LMB and that the financial reporting and internal control procedures, business processes, policies and systems of both HMSB and LMB can be integrated and unified successfully;
(ii)
there are no disruptions to key business processes and impact on business continuity, which includes attrition of customers and accounts; and
(iii)
there are no other integration related issues,
which may result in the LMB Group not being able to fully realise the anticipated benefits and value from the Proposed Acquisition and which accordingly may have a material adverse effect on the financial and operating conditions of the enlarged LMB Group. 7.3
Political, economic and regulatory risk Similar to the LMB Group, the HMSB Group is exposed to uncertainties caused by adverse changes in political, economic and regulatory conditions in Malaysia which could result in subdued construction activity and thus, adversely affecting the building materials sector in which HMSB operates. The LMB Group will mitigate such risk by continuing to review its business development strategies in response to the changes in political, monetary, fiscal and economic conditions in Malaysia.
8.
EFFECTS OF THE PROPOSED ACQUISITION 8.1
Share capital and substantial shareholders’ shareholdings The Proposed Acquisition will not have any effect on the issued and paid-up share capital and shareholdings of the substantial shareholders of LMB as the Proposed Acquisition does not involve any issuance of ordinary shares of RM1.00 each in LMB (“Shares”).
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8.2
NA per Share and gearing For illustrative purposes only, the proforma effects of the Proposed Acquisition on the NA per Share and gearing of the LMB Group, based on the latest audited consolidated statements of financial position of LMB as at 31 December 2014, and on the assumption that the Proposed Acquisition had been effected on that date are set out below: Audited as at 31 December 2014 Share capital Reserves
After the Proposed Acquisition
RM’000
RM’000
849,695
849,695
1,139,579
1,139,579
Retained earnings
1,131,447
(1)1,129,047
Equity attributable to owners of the Company
3,120,721
3,118,321
849,695
849,695
No. of Shares NA per Share (RM)
3.67
Total borrowings
-
Gearing (times)
-
3.67 (2)
383,564 0.12
Notes: (1) (2)
8.3
After deduction of estimated expenses of RM2.4 million in relation to the Proposed Acquisition After taking into consideration the borrowings of HMSB of RM53,564,000 based on the latest audited consolidated statements of financial position of HMSB as at 31 December 2014 and assuming bank borrowings of RM330.0 million is obtained by LMB or its nominated wholly-owned subsidiary to fund the Proposed Acquisition
Earnings and earnings per Share (“EPS”) The Proposed Acquisition is expected to contribute positively to the earnings and EPS of the LMB Group for the ensuing financial years with the inclusion of the earnings contribution from the HMSB Group.
9.
APPROVALS REQUIRED The Proposed Acquisition is subject to the following approvals being obtained: (i)
non-interested shareholders of LMB at an extraordinary general meeting (“EGM”) to be convened in relation to the Proposed Acquisition; and
(ii)
other relevant authorities and/or parties, as specified in Section 2.2.4 of this Announcement.
The Proposed Acquisition is not conditional upon any other corporate exercise/scheme of LMB.
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10.
INTERESTS OF THE DIRECTORS, MAJOR SHAREHOLDERS AND/OR PERSONS CONNECTED WITH THEM Save as disclosed below, none of the Directors, major shareholders and/or persons connected with them have any interest, direct or indirect, in the Proposed Acquisition: Interested Shareholders: (i)
Associated International Cement Limited (“AIC”), being the major shareholder and immediate holding company of LMB pursuant to its 51.0% direct interest in LMB. AIC is also an indirect subsidiary of LafargeHolcim, being the ultimate holding company of both LMB and HMSB; and
(ii)
LafargeHolcim, being the ultimate holding company of HMSB and LMB pursuant to its indirect interest in LMB held via Lafarge S.A., Societe Financiere Immobiliere et Mobiliere, Financiere Lafarge SA, Lafarge Building Materials Limited, Lafarge Finance Ltd, Lafarge International Holdings Limited, Blue Circle International Holdings BV and AIC.
Interested Directors: (i)
Thierry Legrand, being the Executive Director (President & Chief Executive Officer) of LMB nominated by LafargeHolcim;
(ii)
Lim Yoke Tuan, being the Executive Director (Executive Vice President, Finance & Chief Financial Officer) of LMB nominated by LafargeHolcim;
(iii)
Jean-Claude Block, being the Non-Executive Director of LMB nominated by LafargeHolcim;
(iv)
Sapna Sood, being the Non-Executive Director of LMB nominated by LafargeHolcim; and
(v)
Bi Yong So Chungunco, being the Non-Executive Director of LMB nominated by LafargeHolcim.
The Interested Shareholders and Interested Directors are collectively referred to as the “Interested Parties”). The Interested Directors have abstained and will continue to abstain from all deliberations and voting at the relevant Board meetings of LMB in respect of the Proposed Acquisition. The Interested Parties will abstain from voting in respect of their direct and/or indirect shareholdings, if any, in LMB on the resolution pertaining to the Proposed Acquisition to be tabled at the EGM to be convened. Further, the Interested Parties will ensure that persons connected with them will abstain from voting in respect of their direct and/or indirect shareholdings, if any, in LMB on the resolution pertaining to the Proposed Acquisition to be tabled at the EGM to be convened.
11.
TRANSACTION WITH THE SAME RELATED PARTY FOR THE PRECEDING TWELVE (12) MONTHS The LMB Group has not entered into any transaction with LafargeHolcim and Holcim Indonesia for the twelve (12) months preceding the LPD.
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12.
DIRECTORS’ STATEMENT The Board (save for the Interested Directors), having considered all aspects of the Proposed Acquisition, including the salient terms of the SPA, basis and justification for the Purchase Consideration, rationale and benefits of the Proposed Acquisition, prospects of HMSB and the enlarged LMB Group as well as the effects of the Proposed Acquisition, is of the opinion that the Proposed Acquisition is in the best interest of the LMB Group.
13.
AUDIT COMMITTEE’S STATEMENT The audit committee of LMB (save for Jean-Claude Block who is an Interested Director), having considered all aspects of the Proposed Acquisition including the salient terms of the SPA, basis and justification for the Purchase Consideration, rationale and benefits of the Proposed Acquisition, prospects of HMSB and the enlarged LMB Group, the effects of the Proposed Acquisition and after taking into consideration the advice of Public Investment Bank Berhad, the Independent Adviser, is of the opinion that the Proposed Acquisition is:
14.
(i)
in the best interest of the Company;
(ii)
fair, reasonable and on normal commercial terms; and
(iii)
not detrimental to the interest of the non-interested shareholders of the Company.
ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances, the Proposed Acquisition is expected to be completed by the fourth (4th) quarter of 2015.
15.
PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Acquisition pursuant to Paragraph 10.02(g) of the Main Market Listing Requirements of Bursa Malaysia Securities Berhad is approximately 10.6%, based on the Purchase Consideration compared with the latest audited consolidated net assets of LMB.
16.
ADVISERS Maybank IB has been appointed as Principal Adviser to the Company for the Proposed Acquisition. In view of the interests of the Interested Parties as set out in Section 10 of this Announcement, Public Investment Bank Berhad has been appointed as Independent Adviser to undertake the following in relation to the Proposed Acquisition: (i)
comment as to whether the Proposed Acquisition is: (a)
fair and reasonable so far as the non-interested shareholders of LMB are concerned; and
(b)
to the detriment of the non-interested shareholders of LMB,
and such opinion must set out the reasons for, the key assumptions made and the factors taken into consideration in forming that opinion; (ii)
advise the non-interested shareholders of LMB as to whether they should vote in favour of the Proposed Acquisition; and 15
(iii)
17.
take all reasonable steps to satisfy itself that it has a reasonable basis to make the comments and advice in relation to items (i) and (ii) above.
DOCUMENTS AVAILABLE FOR INSPECTION The following documents are available for inspection at the registered office of LMB at Level 12, Bangunan TH Uptown 3, No. 3, Jalan SS21/39, 47400 Petaling Jaya, Selangor Darul Ehsan during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this Announcement: (i)
the SPA; and
(ii)
the Independent Valuation Letter.
This Announcement is dated 18 September 2015.
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