About WTK

My dearest Moo Moo Cow,

Were you aware of the issues regarding WTK Holdings purchase of Linshanhao Plywood (Sarawak) Sdn Bhd. This issue was highlighted on last weeks Edge Weekly: 9 Apr 2007: Corporate: Seeing red over WTK's plywood buy

Firstly, this deal was announced on 27th July 2006. W T K HOLDINGS BERHAD ("WTK" or "Company") PROPOSED ACQUISITION OF 100% EQUITY INTEREST IN LINSHANHAO PLYWOOD (SARAWAK) SDN BHD

Now let's look at the issues mentioned about this purchase by WTK.

• Shareholding dilution, and not a high purchase price, is likely the main reason the Employees Provident Fund (EPF) and Lembaga Tabung Haji objected to WTK Holdings Bhd's acquisition of a plywood company. The EPF is the largest institutional investor in WTK with a 11.31% stake. Tabung Haji holds a 3.8% stake. The largest shareholder in the company is the WTK group with a 33% stake. In a shareholders' meeting to deliberate the deal last Monday, the two institutional investors made known their objections to WTK's directors. The EPF called for a ballot and the majority of shareholders voted in favour of the deal. It was reported that the two institutional investors opposed the deal due to the high valuation.

Well, how bad is the dilution?

In that announcement, there is a word file attached. If you open it, you will see the following table.

11,600,928 new shares will be issued, which is a dilution about 7%.

Is this a serious dilution?

And then the problem is WTK is now trading at 8.35. And these new shares were only valued at rm4.31!!! So accordingly it was a windfall for some.

• However, higher selling prices of timber products due to greater demand have boosted the bottom line of many timber companies, including WTK. The stocks of these companies have increased significantly in value. For WTK, its share price has doubled in the past nine months. The counter closed at RM8.60 last Thursday. This means that the vendors of Linshanhao get a windfall of about RM50 million, as they will be getting WTK shares that have a market price of RM8.60, which is 100% more than the price the shares were valued at nine months ago.

Ah, yes it is a huge windfall but..

• WTK is a timber company with an 850,000ha concession in Sa­ra­wak. It trades and processes timber logs. One of its downstream pro­ducts is plywood. The company is buying Linshanhao Plywood (Sarawak) Sdn Bhd for RM150 million, to be paid with RM100 million cash and the rest via issuance of 11.6 million new shares priced at RM4.31 per share. The contention is the price the new shares are issued at. When the deal was announced in July 2006, WTK shares were trading at about RM4.30.

WTK was trading at 4.30 on 27th July 2006 when the deal was announced. How? Can we call the deal unfair?

• Regardless of the shareholding dilution affect, a market observer says, "To price the new shares at 5% to 10% below the market price is reasonable to sweeten a deal. But to issue them at 50% below the market price is unreasonable."

Well I wonder if this market observer observed the price of WTK when the deal was announced back in July 2006.

How?