CSE Global Ltd. - MANAGEMENT REPLY: Why did its Group MD and CEO purchase shares just days before a disclosable acquisition?

Friday, 5 February 2016 - CSE Global Limited's latest announcement about the purchase of certain assets in the US is a rather confusing one.

First, it didn't disclose what assets it purchased from the vendors.

Second, at one place in the announcement the company said it was acquiring the vendors and not just certain assets from them.

Third, the company has agreed to pay an additional consideration in case the assets generate targeted profits, but the vendors have not guaranteed any minimum profits in return.

Fourth, on the day of the signing of the agreement, the company incorporated entities with names similar to that of the vendors.

Finally, its CEO bought shares just days before the announcement of the disclosable transaction.

Now for the full report in detail:

Investor Central. Asian insights for global investors. We ask the tough questions of Asian companies to which global investors need answers.

Question

1. What "assets", worth how much, did it buy from CCAG?

Remarkably, the announcement didn't disclose what "assets" the company bought from CCAG.

The announcement did mention the net book value of such "assets" to be US$1.44 mln (about S$2.1 mln).

According to Rule 1010(5) of the listing manual, CSE Global's announcement should have disclosed the book value, net tangible assets value and the latest available open market value of the "assets" being acquired from CCAG.

We couldn't spot the market value of the "assets" in the company's announcement.

Management replyTaking reference from the Asset Purchase Agreement which was made available to the public within 30 days of the announcement, the assets refer to the properties, assets and rights of the Seller as spelt out below:
(1) all right, title and interest in, to and under all Intellectual Property used in or relating to the Business, the name "C.C. American Oilfield LLC.", the "www.aos-tx.com" domain;
(2) all right, title and interest of the Seller in, to and under all contracts, agreements, commitments, purchase orders and other legally binding arrangements that are listed in Schedule 3.1(m);
(3) the originals of all books of account, general, financial and accounting records, files, manuals, invoices, quotations, proposals, customer correspondence, sales prospects, customer and supplier lists, prospect information, contact histories, lists of current and potential distributors, and other data relating to the Acquired Assets or the Business;
(4) all accounts receivable of the Seller that are not Excluded Assets, whether billed or unbilled, and all claims, contract rights, and judgments relating thereto, including, but not limited to, all of Seller's rights to any proofs of claim filed against account debtors;
(5) all machinery, equipment, furniture, fixtures and vehicles owned by Seller and used in or relating to the Business;
(6) all inventory used in or relating to the Business;
(7) all interests in real property of the Seller;
(8) all post office boxes, all telephone numbers, answering service numbers, e-mail addresses, internet sites, domain names and all communication codes or numbers, used in connection with the Business;
(9) all goodwill relating to the Business; and
(10)any other tangible or intangible assets of the Seller relating to the Business.
There was no available market value, since the "assets" were acquired at book value.

Question

2. Is there more to the transaction than what was announced to the shareholders?

In explaining the rationale for the acquisition, the company said it was in line with its long term business plans to expand through "acquisition of companies with specialized skills and technologies complementary to the existing businesses of CSE and strengthen its geographical coverage."

But the fact is that CSE Global bought "certain assets", and not companies, from CCAG.

CSE Global goes on to explain that the acquisition will lead to "stronger alignment of CSE's customer base and the current and potential customer base of CCAG."

Any reasonable investor would wonder how the acquisition of "certain assets" from CCAG aligns the businesses of CSE Global and CCAG.

Therefore, is there more to the transaction than what has been announced to the shareholders?

We honestly can't make sense of it.

Finally, in explaining the rationale for the acquisition, CSE Global said "CSE believes the acquisition of CCAG will provide future growth to the Group, though CCAG's business in the short term may be impacted due to the current low oil prices."

It is remarkable that the company said it was acquiring CCAG when it was actually buying "certain assets" from CCAG.

Management replyThere was nothing more to the transactions than what was announced to the shareholders. The buying of "certain assets" include not just tangible assets but they also include all business interests, intellectual property, customer lists, contracts, and any other intangible assets of CCAG, when taking all together, means buying the businesses of CCAG, which will complement the existing businesses of CSE Global.

(Read the full story to get all 8 important questions)

We thank the management for the replies.

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