PETALING JAYA: Hextar Industries Bhd (HIB) has entered into a conditional share sale agreement (SSA) to acquire the entire equity interest in Hextar Fertilizers Ltd (HFL) from Hextar Holdings Sdn Bhd (HHSB) for RM480 million to increase its production capacity and to leverage HFL’s local distribution network to expand its fertiliser business.
HHSB is the parent company of both HIB and HFL, with equity interest of 45.7% and 100% respectively. Directly under HFL is Hextar Fertilizers Group Sdn Bhd, which comprises Hextar Fert Sdn Bhd, Hextar Solutions Sdn Bhd and PK Fertilizers Sdn Bhd. Through this proposed acquisition, HFL will become a wholly owned subsidiary of HIB.
The purchase consideration of RM480 million will be wholly satisfied through the issuance of 1.6 billion new shares in HIB (consideration shares) at an issue price of 30 sen per share. HHSB has given a profit guarantee of an aggregate of RM94 million over two years.
Additionally, the issuance of the consideration shares will result in HHSB’s shareholdings increasing to 77.3%, an increase of more than 2% in the company. As a consequence, HHSB will be required to extend a mandatory general offer to acquire the remaining HIB shares not already owned by HHSB upon the SSA becoming unconditional.
Subsequently, HHSB will undertake an offer for sale to reduce its shareholdings to ensure that HIB shall at all times be in compliance with the public shareholding spread requirement.
Commenting on the proposed acquisition, HIB chairman Datuk Chan Choun Sien said the fertiliser business is a competitive industry and it needs scale to be able to compete effectively in the market.
“The HFL group’s fertiliser operations are significantly larger than HIB group’s current operations and will provide us with access to an established distribution network and manufacturing facilities within Peninsular Malaysia and East Malaysia as well as enable us to expand deeper into Sarawak, which the HIB group is currently serving.
“The proposed acquisition also comes with a profit guarantee of RM94 million over two financial years. With the purchase consideration being satisfied entirely in shares, HIB group will be able to preserve its cash for its business operations. The enlarged capital base following the issuance of the consideration shares will also be more reflective of the scale of the combined operations.”
Meanwhile, HIB and HHSB major shareholder and director Datuk Eddie Ong Choo Meng opined that the proposed acquisition will eliminate the conflict of interests arising from HHSB’s shareholdings in HIB group and HFL group. By consolidating the businesses under the HIB group, shareholders will not need to approve the recurrent related-party transactions entered into between the two groups annually and the management can instead focus on growing the business.
“Notwithstanding, an independent adviser has been appointed to advice non-interested directors and non-interested shareholders of HIB on the fair and reasonableness of the proposed acquisition to ensure that minority shareholders interest are always protected,” he said.
“There are many complementary synergies to be derived from the acquisition of the HFL group. We will be able to leverage on our combined strengths in relation to management experience, market position, production capabilities and respective business relationships to create a more resilient platform to sustain continuous business growth of the enlarged HIB group.
“We are therefore optimistic about the future prospects of the enlarged HIB group. The proposed acquisition will also provide the enlarged HIB group with the earnings uplift to pave the way for our eventual transfer to the Main Board which will enhance shareholders’ value further,” Ong concluded.
