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Rin Kei Mei, who owns 15.5% of EON Capital Bhd (EON Cap), has called for an EGM to appoint eight new directors to join the current board of the financial group.

This latest development follows EON Cap’s rejection of Hong Leong Bank Bhd’s (HLB) RM4.92bil cash offer for the former’s entire assets and liabilities.

The appointments, if approved at the EGM scheduled for Feb 22 at Hotel Equatorial KL, will be of immediate effect and will increase the current EON Cap board size to 15 members.

“The company wishes to announce that the board of directors has today received a letter dated Feb 4 from Kualapura (M) Sdn Bhd and Lintang Emas Sdn Bhd to notify that they will call and convene an EGM pursuant to section 145 of the Companies Act 1965,” EON Cap told the stock exchange last night.

Both Kualapura and Lintang Emas are Rin’s investment vehicles.

“Rin’s group will have a majority of directors if the appointments are approved, and that will pave the way for any kind of fresh offer from HLB to go through,” an analyst said.

Rin is thought to be one of the more willing sellers of the deal as his entry cost was said to be well below HLB’s offer of RM7.10 per share.

On Tuesday, EON Cap rejected HLB’s RM4.92bil cash offer to buy its entire assets and liabilities, saying that it “undervalued” the company.

It said it would not table the offer for consideration and approval by shareholders, therefore lapsing the offer.

The statement yesterday named the eight proposed directors, namely Tengku Ahmad Faisal Tg Ibrahim, Tengku Azman Ibni Sultan Abu Bakar, Haron Siraj, Tan Leh Kiah, Zaha Rina Zahari, Wee Hoe Soon@Gooi Hoe Soon, Nicholas John Lough@Sharif Lough Abdullah and Ahmad Riza Basir

EONCap’s current seven-member board consists of chairman Tan Sri Syed Anwar Jamalullail, Datuk Dr Mohd Shahari Ahmad Jabar, Rodney Gordon Ward and Yeo Kar Peng.

All four are independent directors.

The other three members are major shareholders of EON Cap – they are Rin, Datuk Seri Tiong Hiew Khing and managing director and founding partner of Hong Kong private equity firm Primus Pacific Partners (Primus) Ng Wing Fai.

Of the major shareholders, Tiong has 17.1% stake, Primus which bought EON Cap shares in 2008 has a 20.2% stake, Khazanah Nasional Bhd 10% and the Employees Provident Fund 12%.

“Primus is believed to exert a significant influence on the board, so this proposed appointment of additional directors is seen as a move to dilute the influence of Primus,” an industry observer said.

Primus, said to be the unwilling seller in the deal, is understandably not interested in the all-cash offer as it had in 2008 bought EON Cap shares at RM9.55 each, which is more than a third above HLB’s offer price of RM7.10 a share.

Although HLB’s offer is lower than general expectations, it is believed that the price is still higher than Rin and Tiong groups’ cost of around RM2 per share, and Khazanah and EPF’s cost of below RM6 per share.

At RM4.92bil, HLB’s offer valued EON Cap at 1.4 times price to book value, which falls at the lower spectrum of the valuation range of previous local merger and acquisition deals.

Analysts have said that RM8 per share (1.6 times price to book value) could be a “fairer price’’.

Under the Listing Requirements, shareholders who hold at least 10% of voting rights in the company have the power to convene an EGM to appoint new directors to the board. A company board meanwhile can comprise up to 15 directors.

Related Posts:

• Hong Leong extends EONCap offer to November 2010
• Hong Leong revised terms to buy EON Cap
• EONCap board approved submission offer to shareholders
• EON Cap rejects Hong Leong’s offer
• EON Cap seeks Bank Negara approval to negotiate with any buyer

DiGi.Com Bhd said it will pay out 138% of its 2009 net profit as dividends after posting a full-year earnings that were in line with analysts’ expectations but which showed the effects of last year’s economic slowdown.

The full-year dividend payout, at RM1.78 per share and totalling RM1.38bil, is DiGi.Com’s largest in terms of proportion to its net profits and gives its shares a dividend yield of 8% based on yesterday’s closing price of RM21.10 per share.

DiGi used its strong cashflows and raised a little more debt to pay out its dividends. It is likely to maintain, if not increase, its dividend payments in 2010.

Johan Dennelind, chief executive officer of DiGi, explained: “It is no secret. We are gearing up to pay more dividends. We hope to reach the optimal use of our balance sheet and debt to equity level this year to maintain our yield story. We are not there yet.”

DiGi also enjoyed an increase its operational cashflows – essentially derived from its earnings before interest, tax, depreciation and amortisation (EBITDA) minus capital expenditures and which provides a good indication of cash available for dividend payments – to RM1.4bil for 2009 compared with RM1.27bil previously.

Without providing details, Dennelind added that while DiGi may increase its debt levels, it would not do so at the extent of missing out on investment opportunities in growth areas such as mobile internet.

In the fourth quarter ended Dec 31, 2009, DiGi’s interest bearing debts rose by RM50mil to RM921.7mil, while its cash position dipped by RM187.6mil to RM430mil.

UOB Kay Hian’s head of research Vincent Khoo said DiGi’s headline figures were in line with analysts expectations but pointed out that margins were easing.

He added that DiGi’s use of its cash and debt to pay dividends was not a concern. “It is merely managing its capital and optimising its gearing to distribute cash to shareholders, something that mature companies tend to do.”

For the year ended Dec 31, 2009, DiGi.Com posted an EBITDA of RM2.1bil, a drop from the previous year’s RM2.2bil.

DiGi.Com’s EBITDA margins also dropped to 43.3% compared to 45.1% in the previous year, the result of a decline in its average revenue per user to RM55 from RM59 previously. DiGi.Com attributed the slowdown to reduced spending by the low-income segments and increased competition.

On the prospects for 2010, Dennelind said DiGi was optimistic that the overall usage trend would stabilise and business would continue to grow, arising from a big pent up demand for quality broadband and internet access.

For FY2009, net profit was RM1bil versus RM1.14bil in FY2008 although revenue grew by 2% to RM4.91bil, underpinned by steady demand for mobile services from its 7.7 million subscriber base, up 8% year-on-year.

Dennelind said 2009 was a year of transition for DiGi as it ventured into the provision of mobile internet in a big way. “The focus now is to turn this into revenue momentum,” he said.

He said the future growth of the industry would be driven by a higher uptake of mobile internet services.

“The launch of DiGi Internet last year has been well received with more than 500,000 mobile Internet customers to date,” he added.

Dennelind also said that DiGi would spend about the same amount it did last year in capital expenditures.

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EON Capital Bhd (EON Cap) has rejected Hong Leong Bank Bhd’s (HLB) RM4.92bil cash offer to buy its entire assets and liabilities and will not table the offer for consideration and approval by shareholders, therefore lapsing it.

In a statement to Bursa Malaysia yesterday, EON Cap said after fully consulting its advisers and considering all available information, its board of directors had resolved that the offer was “not in the interests” of EON Cap and its shareholders based on, among others, the purchase consideration in relation to the offer.

“The EON Cap board rejected HLB’s acquisition offer today, because it significantly undervalues EON Capital,” the financial group said in a separate statement to the media yesterday.

In its own statement, Hong Leong Financial Group Bhd president and HLB director Raymond Choong said the financial group was “disappointed” with EON Cap’s decision.

“We are disappointed as we have made a fair and attractive offer. We were hoping that the EON Cap board would table our offer to shareholders for their decision,” Choong said.

EON Cap told Bursa Malaysia the board of directors had accordingly resolved not to table the offer for consideration and approval by its shareholders at a general meeting and not to submit an application to the relevant authorities for approval to accept the offer.

HLB said it received EON Cap’s letter yesterday informing of the latter’s decision. “Accordingly, the offer has lapsed,” it said.

In its statement, EON Cap chairman Tan Sri Syed Anwar Jamalullail said: “We have taken the time to fully consider HLB’s bid and have chosen to reject it. This decision is in line with the board’s fiduciary duty to secure the best value for all shareholders.”

Syed Anwar said the “undervalued acquisition bid” did not account for EON Cap’s significant recent and projected growth, underpinned by the company’s recently completed transformation programme.

According to EON Cap, its three-year transformation programme, completed last October, had positioned the group for “strong and sustained future growth as an independent company”.

Analysts said now that the EON Cap board had decided not to put the takeover bid up for shareholders’ vote, major shareholders of the company could call for an EGM for the proposal to be considered.

“The shareholders could call for an EGM; it really depends on how much they want it (to sell),” said an analyst with a local bank-backed brokerage.

Alternatively, they might hold off for a while to see if they “get better offers from other potential bidders or if HLB decides on another move,” she added.

According to the Companies Act, shareholders with at least 10% of EON Cap shares can call for an EGM to table the offer for shareholders to consider.

EON Cap’s major shareholders comprise Rin Kei Mei with a 15.5% stake, Tan Sri Tiong Hiew King (17.1%), Primus Pacific Partners (HK) Ltd, (20.2%), Khazanah Nasional Bhd (10%) and the Employees Provident Fund (EPF:12%) .

It is understood only a simple majority is needed from shareholders to approve the proposed transaction at an EGM.

In other words, the offer requires merely the consent of shareholders with a combined 50% plus one share of EON Cap’s paid-up capital

Rin, Tiong, Khazanah and EPF, who according to some analysts “should take the offer”, collectively hold a combined 54.6% stake.

In theory, if these substantial shareholders are willing to accept HLB’s offer, they can ask to convene an EGM to vote on the deal.

Primus, said to be the unwilling seller in the deal, is understandably not interested in the all-cash offer which would crystallise its losses.

Primus had in 2008 bought EON Cap shares at RM9.55 each, which is more than a third above HLB’s offer price of RM7.10 a share

Although HLB’s offer is lower than general expectations, it is believed that the price is still higher than Rin and Tiong groups’ cost of around RM2 per share, and Khazanah and EPF’s cost of below RM6 per share.

At RM4.92bil, HLB’s offer valued EON Cap at 1.4 times price to book value, which falls at the lower spectrum of the valuation range of previous local merger and acquisition deals.

Analysts have said that RM8 per share (1.6 times price to book value) could be a “fairer price”.

Last Wednesday, EON Cap said it had requested for an extension to Feb 2, an additional five-day extension to its seven-day deadline to decide if it wanted to accept HLB’s offer.

EON Cap’s financial advisers Goldman Sachs and Ethos & Co indicated early last week that there are other parties interested in acquiring EON Cap, apart from HLB.

Related Posts:

• Hong Leong extends EONCap offer to November 2010
• Hong Leong revised terms to buy EON Cap
• EONCap board approved submission offer to shareholders
• EGM for EON Cap
• EON Cap seeks Bank Negara approval to negotiate with any buyer