Top Global Limited - UPDATED: Why did controlling shareholder's son sell 300 mln shares just days before Tuesday's EGM?

16/10/2014 – Top Global Ltd's independent shareholders gathered Regent Hotel Tuesday to vote on the contentious acquisition of a 71.52% stake in Indonesia Stock Exchange listed PT Suryamas Dutamakmur Tbk for S$153 mln from Top Global's controlling shareholder Sukmawati Widjaja.

The resolution was approved with shareholders owning 556,419,582 shares voting for it, and shareholders holding 335,267,000 shares voted against it.

Mdm Widjaja (who belongs to the family which controls the Sinar Mas Group in Indonesia) owns a 54.12% stake in Top Global, as per the circular on September 29.

Top Global proposed to allot 19 bln new shares to Mdm Widjaja to pay for the stake.

As a result, she would own an 82.76% stake in Top Global after the acquisition.

Before the EGM, a group of shareholders who said they hold 250 mln shares told Investor Central they would vote against the transaction because the 19 bln new shares will be offered at a 31% discount to their net asset value, while the purchase price of S$153 mln will be more than double the S$64.7 mln they are worth.

When the acquisition was first announced last December the sale consideration included 5 bln options in Top Global – a requirement which was dropped in a supplement to the circular on September 4.

The acquisition will not trigger an obligation for Top Global to make a tender offer for the public shareholders of Suryamas Group as the acquisition doesn't lead to a change in control of Suryamas Group.

Simply put, the transaction leads to transfer of Mdm Widjaja's controlling stake in Suryama Group to another company controlled by her.

At the prevailing stock price of 0.8 Singapore cents, Top Global's market capitalisation would increase to about S$240 mln after the acquisition.

Evidently, the proposed interested party transaction is beneficial for the controlling shareholder of Top Global Ltd, while the independent public shareholders will see their stake in the company will be reduced to 17.24% from 45.92% now.

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

Question

1. Why did Sukmawati Widjaja's son sell 300 mln shares just days before the EGM?

According to an announcement on October 7, Hano Maeloa - an executive director cum CEO of Top Global - sold 300 mln shares for to an undisclosed buyer for 0.7 cents per share in an off-market transaction on October 2.

As a result, his stake in the company dropped to 0.53% from 3.15% earlier.

Hano Maeloa is the son of Oei Siu Hoa @ Sukmawati Widjaja.

After the sale, Mdm Widjaja's total stake in Top Global has dropped to 51.46% from 54.08% previously.

The timing of the transaction is important because it was executed just three days after the circular for the EGM was despatched to Top Global's shareholders, and just 12 days before the scheduled EGM.

Top Global is buying a 71.52% stake in Suryamas Group from Mdm Widjaja for S$153.7 mln (including costs).

Apparently, it is an interested party transaction.

Consequently, Mdm Widjaja and her associates would have had to abstain from voting at the EGM on Tuesday.

But as Hano Maeloa sold a 2.62% stake just days before the EGM, one wonders if this was just an arrangement to enable the controlling shareholder to vote at the EGM, which they couldn't have done otherwise.

Moreover, the resolution was approved at the EGM with about 221 mln votes more in favour than that against it.

Therefore that makes us wonder if it was these 300 mln shares of Hano Maeloa that secured victory for the interested party transaction.

Also, on page 57 of the September 29 circular, the company said that Mdm Widjaja and Hano Maeloa have guaranteed not to sell any shares for a period of 6 months from the date of completion of the acquisition.

Technically, Hano Maeloa can sell his shares before the acquisition is completed.

But the bigger question is: what message did it send for him to sell shares just 3 days after agreeing to a moratorium in the circular on the independent shareholders September 29?

In response to our queries a spokesman said the company would be happy to address all shareholders’ questions at the EGM.

Question

2. Why are the parts of the circular, where the independent and reporting auditor almost qualified its opinion, illegible?

According to the circular (page 2), Nexia TS Public Accounting Corporation is the Independent and Reporting Auditor of Top Global.

For the purpose of the circular, Nexia TS converted the financials of Suryamas Group to IFRS in order to prepare its report on examination of the unaudited pro forma consolidated financial statements of Top Global after the acquisition (refer page 95 of the circular).

But the report of Nexia TS (appended on page 439 onwards) is hardly legible in the circular.

More importantly, the audit opinion on page 440 draws attention towards some adjustment relating to the bargain purchase.

But due to a very bad print of the report, we are unable to read any further.

And that continues for the entire report appended from page 440 to page 612 of the circular.

The company spokesman said the document was compressed during conversion to PDF, and a hard copy would be made available to shareholders at the EGM.

(Read the full story to get all 4 questions)

In response to our queries a spokesman said the company would be happy to address all shareholders’ questions at the EGM.

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