Aug 12, 2015 - As at 11 August 2015, MLD has an authorised share capital of RM7,500,000 ... company listed on Frankfurt
COMPANY NAME STOCK NAME STOCK CODE TYPE SUBJECT
1.
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KAREX BERHAD KAREX 5247 ANNOUNCEMENT PROPOSED ACQUISITION OF 100% EQUITY INTEREST IN MEDICAL-LATEX (DUA) SDN BHD (“MLD”) FROM BEIERSDORF AKTIENGESELLSCHAFT (“VENDOR”) FOR A CASH CONSIDERATION OF RM13 MILLION
INTRODUCTION The Board of Directors (“Board”) of Karex Berhad (“Karex”) wishes to announce that Karex had on 12 August 2015 entered into a conditional share purchase agreement (“SPA”) with the Vendor for the purpose of pursuing the proposed acquisition of 100% of the issued and paid-up share capital in MLD from the Vendor (“Proposed Acquisition”).
2.
THE PROPOSED ACQUISITION
2.1
Information on MLD and the Vendor
2.1.1
Information on MLD MLD is a private limited company incorporated in Malaysia on 1 September 1987 under the Companies Act, 1965 with its place of business at Plo 8, Senai Industrial Estate, 81400 Senai, Johor, Malaysia. As at 11 August 2015, MLD has an authorised share capital of RM7,500,000 divided into 7,500,000 ordinary shares of RM1.00 each and have been issued and fully paid-up. As at 11 August 2015, MLD does not have any subsidiary or associated company. MLD is principally engaged in the manufacturing of the Vendor’s condom brands such as DUO and HARMONY for the European and Latin American markets. MLD also produces its own inhouse brands such as ESP (Enjoyable Safe Pleasure), and N’JOY to fulfill the global demands for the highest quality sexual healthcare and intimate care products. Based on its latest audited financial statements for the financial year ended (“FYE”) 31 December 2014, MLD has an audited net assets (“NA”) of RM11.87 million and net loss RM2.97 million respectively.
2.1.2
Information on the Vendor The Vendor is a German multinational company listed on Frankfurt Stock Exchange with a market capitalisation of EUR20.3 billion as at 11 August 2015. As at 11 August 2015, the Vendor has a share capital of EUR252,000,000 divided into 252,000,000 no-par-value bearer shares. Vendor’s core business is their skin care products with world renowned brands such as NIVEA, Eucerin and La Prairie. For over 130 years, Vendor research and development expertise, innovative products, and strong brands are the reasons for their success and strives to be the number one skin care company. Today, the Vendor has more than 150 affiliates and over 17,000 employees worldwide. Also, its subsidiary tesa SE is one of the world’s leading producers of selfadhesive products and system solutions for industry, craft businesses, and consumers. Based on its latest audited financial statements for the FYE 31 December 2014, the Vendor has achieved €6,285 million sales and €537 million profit after tax with €3,640 million NA.
2.2
Details of the Proposed Acquisition
2.2.1
Basis and Justification of Arriving at the Purchase Consideration The purchase consideration of RM13 million (“Purchase Price”) was arrived at on a willing-buyer willing-seller basis after taking into consideration, inter-alia, the net asset value of MLD (as disclosed above in item 2.1.1), the revaluation gain of leasehold land and buildings of RM4.4 million and the future growth prospects for MLD. The Purchase Price represents a price-to-book ratio of approximately 1.09 times based on the audited NA of MLD as at 31 December 2014. Simultaneously with the completion of the Proposed Acquisition, Karex will settle the outstanding loan including accrued interest thereon amounting to RM2 million in aggregate owing by MLD to the Vendor (“Loan Settlement Sum”).
2.2.2
Source of Funds The Proposed Acquisition will be satisfied entirely in cash, which will be financed by the proceeds raised from the private placement exercise completed by Karex on 11 March 2015.
2.2.3
Particulars of Liabilities to be Assumed by Karex There is no liability other than the obligation as disclosed in item 2.2.1 above, including contingent liabilities and guarantees, to be assumed by Karex arising from the Proposed Acquisition.
2.2.4
Salient Terms of the SPA The salient terms of the SPA include, inter-alia, the following: (i)
Sale and Purchase Subject to the terms and conditions therein contained, on the Completion Date (as defined below), the Vendor shall sell, transfer and deliver to Karex, and Karex shall purchase and accept from the Vendor, 7,500,000 ordinary shares of RM1.00 each in MLD, held beneficially and on record by the Vendor and constituting 100% of the entire issued and paid-up share capital of MLD free from any encumbrances (“Sale Shares”), at the Purchase Price.
(ii)
Purchase Price The Purchase Price shall be payable by Karex to the Vendor on the Completion Date (as defined below).
(iii)
Condition Precedent The SPA shall be unconditional upon the fulfilment of the following condition precedent within 2 months from the date of the SPA or such other period to be mutually agreed in writing between both Karex and the Vendor (“CP Period”): (a)
MLD has procured the approval of the Ministry of International Trade and Industry (“MITI”) or the waiver from Malaysian Industrial Development Authority (“MIDA”) for the transfer of the Sale Shares.
(iv)
Net Assets Adjustment The Purchase Price shall be adjusted downwards in the same amount as any decrease in the NA below its NA as at 28 February 2015 of RM11.017 million as of the end of the month immediately preceding the Unconditional Date (“Net Assets Adjustment”). The “Unconditional Date” shall be the date on which condition precedent as disclosed above in item 2.2.4 (iii) is fulfilled. If there is any dispute on the Net Assets Adjustment where Karex and the Vendor cannot agree upon, each party shall be entitled to request the Malaysian Institute of Accountants to appoint a certified public accountant admitted in Malaysia to act as an independent party (“Neutral Auditor”) to determine the correct, final and binding Net Assets Adjustment.
(v)
Completion Date Within 10 workdays from the Unconditional Date or 10 workdays from the date where Karex and the Vendor agree on the Net Assets Adjustment or 5 workdays from the date the Net Assets Adjustment as determined by the Neutral Auditor, whichever is later (“Completion Date”), Karex shall pay to the Vendor the Purchase Price together with the Loan Settlement Sum by way of telegraphic transfer to the account specified by the Vendor. Upon completion of the Proposed Acquisition, MLD shall become a wholly-owned subsidiary of Karex.
(vi)
Supply Agreement (“SA”) The Vendor has concluded with MLD the SA on 5-year renewal basis to appoint MLD as the exclusive supplier of all condoms specified in the SA to the Vendor and its subsidiaries (“Vendor Group”) effective from the Completion Date. Presently, MLD manufactures the Vendor’s condom brands such as DUO and HARMONY.
(vii)
Right of First Refusal During the term of the SA, the Vendor shall grant Karex a right of first refusal with respect to any proposed disposal by the Vendor Group of its condom brands DUO and HARMONY owned solely by it.
3.
RATIONALE FOR THE PROPOSED ACQUISITION
3.1
International Quality Standards and Certifications MLD has been manufacturing condoms since 1987 for global markets with a strong reputation for reliability and outstanding product quality. All the products are manufactured to meet the international standards of EN ISO 9001 and EN ISO 13485 and the Medical Devices Directive 93/42/EEC (Annex II, Section 3) certified by the German notified body DEKRA. MLD has also been accorded the British Standard Institute (BSI), France’s Laboratoire National D’ESSAIS (LNE), China Food and Drug Administration (CFDA) certification and Singapore’s PSB Tick Mark quality seals beside several other regional quality marks. MLD is amongst one of the few prequalified condom manufacturers under the World Health Organization (WHO) and United Nations Population Fund (UNFPA) pre-qualification programme. The Proposed Acquisition shall allow Karex to build on MLD’s reputation as one of the leading premium quality condom manufacturers today.
3.2
Potential Expansion and Strategic Location MLD is located in Senai, Johor Bahru, south of Peninsula Malaysia. It is strategically located with a proximity of approximately 2 km to the Senai International Airport, 40 km to the Pasir Gudang port and 50 km to Karex’s existing Pontian’s plant. In addition, MLD currently occupies only 30% of its land size of 6 acres with a staff strength of 140. Karex sees room for growth for MLD and believes that with their experienced team and manufacturing facilities, there are opportunities to expand its business further.
3.3
Acquisition of Own Brand Manufacturing (“OBM”) The Proposed Acquisition also allows Karex to acquire MLD’s OBM product namely ESP brand which was established since 2007 and it is now a growing brand in the retail market of Singapore and Malaysia. The premium product range of ESP brand includes super thin condom such as ESP Air Thin, one of the thinnest condoms available in the market. ESP fits perfectly into Karex’s existing OBM product range. Karex believes that it will complement Karex’s existing brands as well as the recent acquired “ONE®” brand in the markets that Karex is going into. Karex believes it can grow ESP further, taking advantage of its current network.
3.4
Exclusivity and Right of First Refusal Included in the SPA is the right of first refusal for Karex to acquire the DUO and HARMONY brands should the Vendor wishes to dispose of them in the future. This will further enhance Karex’s market position and continues to reshape its footprint in the OBM segment.
4.
PROSPECTS
4.1
Prospects of Malaysian Economy The Malaysian economy registered a growth of 5.6% in the first quarter of 2015 (4Q 2014: 5.7%), underpinned mainly by the private sector demand. On the supply side, growth was supported by the major economic sectors. On a quarter-on-quarter seasonally-adjusted basis, the economy recorded a growth of 1.2% (4Q 2014: 1.8%). Private sector activity remained the key driver of growth during the quarter. Private consumption expanded at a stronger pace of 8.8% (4Q 2014: 7.6%), supported by stable labour market conditions and higher wage growth. The strong private consumption growth was also contributed by the flood relief efforts early in the year, and the frontloading of household spending prior to the implementation of GST. Private investment recorded a growth of 11.7% (4Q 2014: 11.1%), underpinned by capital expenditure in the manufacturing and services sectors. Growth in public consumption improved in the first quarter (4.1%; 4Q 2014: 2.5%), due to higher growth in supplies and services amid moderate growth in emoluments. Public investment turned around to register a positive growth of 0.5% (4Q 2014: -1.9%) following higher capital spending by the Federal Government. On the supply side, growth in the first quarter was supported by the major economic sectors. The services sector was underpinned by growth in all sub-sectors, particularly consumption-related sub-sectors. Growth in the manufacturing sector was supported by stronger performance in the export-oriented industries, particularly the electronics and electrical (E&E) cluster. The construction sector was supported mainly by the non-residential and residential sub-sectors, while the mining sector continued to record stronger growth amid higher crude oil production. Meanwhile, the agriculture sector contracted as a result of lower palm oil production, arising from flood-related disruptions. (Source: Quarterly Bulletin, First (1st) Quarter, Bank Negara Malaysia)
4.2
Prospects and Future Plans of MLD The exclusive SA will ensure that MLD continues to supply high quality condoms to the Vendor Group whilst further strengthening its position with the expected growth in new products and customer base.
5.
RISK FACTORS The Board does not foresee any material risk pursuant to the Proposed Acquisition except for the inherent risk factors associated with the condom industry in which Karex Group is already involved in, such as risks arising from changes in government policies/legislation and regulations affecting the condom industry, risks relating to changes in political, social and economic conditions, and competition and/or business risks. Nevertheless, with the Proposed Acquisition, Karex Group will have further exposure to the condom business in the Europe and South America regions. As such Karex Group’s respective business operations, prospects, financial conditions and level of profitability will be affected by developments in the political, economic and regulatory conditions in the Europe and South America regions upon completion of the Proposed Acquisition. No assurance can be given that any adverse developments in such risks areas would not affect the business and/or financial performance of the Karex Group in the future. However, Karex will undertake necessary efforts to mitigate the various risks identified.
6.
EFFECTS OF THE PROPOSED ACQUISITION
6.1
Share Capital and Shareholdings of Substantial Shareholders The Proposed Acquisition will not have any effect on the issued and paid-up share capital, and shareholdings of the substantial shareholders of Karex.
6.2
NA, NA per share and Gearing The Proposed Acquisition which is expected to contribute positively, are not expected to have any immediate material effect on the NA, NA per share and gearing of Karex for the financial year ending 30 June 2016.
6.3
Earnings and Earnings Per Share (”EPS”) Upon implementation of the capital expenditure and business expansion programme, the Proposed Acquisition is expected to have a positive effect on the consolidated earnings and EPS for the financial year ending 30 June 2016. The effects of the Proposed Acquisition on the future consolidated earnings and EPS of Karex would depend on, amongst others, the future performance of MLD, as well as the Karex Group.
7.
DIRECTORS’ AND MAJOR SHAREHOLDERS’ INTERESTS None of the directors, major shareholders and persons connected with a director or major shareholder of Karex has any interest, direct or indirect, in the Proposed Acquisition.
8.
APPROVALS REQUIRED The Proposed Acquisition is not subject to the approvals of the shareholders of Karex but the SPA is conditional upon the fulfillment of the condition as disclosed in item 2.2.4 (iii).
9.
STATEMENT BY DIRECTORS The Board, having considered all aspects of the Proposed Acquisition, is of the opinion that the Proposed Acquisition is in the best interest of Karex.
10.
PERCENTAGE RATIO UNDER PARAGRAPH 10.02(G) OF THE MAIN MARKET LISTING REQUIREMENTS OF BURSA MALAYSIA SECURITIES BERHAD (“MMLR”) The highest percentage ratio triggered for the Proposed Acquisition pursuant to paragraph 10.02(g) of the MMLR is 5.82%.
11.
ESTIMATED TIME FRAME FOR COMPLETION Barring unforeseen circumstances, the Proposed Acquisition is expected to be completed by early October 2015.
12.
DOCUMENTS AVAILABLE FOR INSPECTION The SPA will be available for inspection at the registered office of Karex during the office hours from Mondays to Fridays (except for public holidays) at 10th Floor, Menara Hap Seng, 1 & 3 Jalan P. Ramlee, 50250 Kuala Lumpur, Malaysia for the period of three (3) months from the date of this announcement.
This announcement is dated 12 August 2015.
