KNM: Do Show Us The Money!

They said they wanted to do a management buyout.

They proudly announced it to the investing market.

Due diligence deadline has been made.reached.

But ..... where's the firm offer????

This is sounding so unreal. Is talk really so cheap?

On Star's Business: No firm offer for KNM assets

• Tuesday March 23, 2010
  
  No firm offer for KNM assets
  
  This is despite a due diligence deadline having been reached
  
  KUALA LUMPUR: KNM Group Bhd has not received a firm offer from a group of buyers to buy its assets at 90 sen a share, despite a due diligence deadline having been reached.
  
  This adds to the possibilility that the buyer may be looking at withdrawing its offer or lowering the price, after KNM recently posted poor fourth-quarter results, dragging its full-year 2009 (FY09) earnings to below analysts’ expectations.
  
  In a filing with Bursa Malaysia yesterday, KNM said it had not extended the exclusivity period for the group of buyers that had intended to acquire KNM’s assets.
  
  KNM said it was still in discussions with the buyers, BlueFire Capital Group Ltd (Bidco), and added that the parties had agreed to endeavour to conclude discussions by April 16.
  
  BlueFire is controlled by KNM’s major shareholder and managing director Lee Swee Eng. But it also has Goldman Sachs private equity (GS Capital Partners VI Fund) and Mettiz Capital Ltd as partners.
  
  Investors may have been hoping for a conclusion of the due diligence and a firm offer for the assets of KNM.
  
  According to KNM’s announcement dated Feb 4, Bidco was supposed to have concluded its due diligence and firm up its sale and purchase agreement by March 22.
  
  KNM posted a loss of RM31mil for its fourth quarter ended Dec 31, which was a significant dip from its third-quarter profit of RM32mil.
  
  As a result of the poor fourth quarter, KNM’s FY09 net profit almost halved to RM171mil, compared with FY08’s RM336.4mil. The result was also significantly below analysts’ consensus forecast for FY09 of RM288.7mil.
  
  It had, therefore, been speculated that there was a possibility that the buyers may be having second thoughts about the acquisition or only be willing to pay a lower price.
  
  When the indicative offer of 90 sen was made, it was priced on an earnings multiple of 14 times KNM’s earnings, based on analysts’ expectations of the group’s FY09 results.
  
  However, since the disappointing results, the price of 90 sen now works out to a multiple of more than 20 times KNM’s FY09 earnings.
  
  This is seen as a high price to pay for the assets and, therefore, could result in the offeror intending to reduce its offer price to a lower multiple of KNM’s earnings.

So, posting 'losses' meant the management could do a lower MBO buyout?

Omigosh!!!

What the heck is this???

And why did KNM suddenly announced a shocking loss of 31 million in their recent quarterly earnings?

Why?

Have a look: Quarterly rpt on consolidated results for the financial period ended 31/12/2009. From the attached wordfile in that announcement (click here )..

• The loss being recognised for this quarter is due to global economic slowdown, revaluation of properties, provision for foreseeable losses and higher operating costs

This means the losses from KNM is derived from provision of future losses.

And a provision is a provision is a provision. There is simply no guarantee that these losses will actually turn out to be losses.

On the back of a corporate management buyout, how could the management announce such a huge provision???

And look at today's events. How could the minoirty shareholders NOT wonder if this is a sneaky ploy from the management to make a lower buyout price?

Is there a conflict of interest with the company making such provision?

Doesn't the timing of the provision stinks?

Worth reading: Minority shareholders unhappy with takeovers

• The most recent case involves the possible conflict arising from the proposed takeover of the entire business and undertakings of KNM Group Bhd by its founder and managing director Lee Swee Eng.
  
  KNM’s all-time high was at RM2.44 on Jan 8, 2008. It closed at 82 sen yesterday.
  
  A minority shareholder of KNM said the issue of fair value (for the acquisition) was one thing but the manner in which the entire business could be potentially sold to an individual in collaboration with interested parties, leaves us minority shareholders on the sideline.
  
  “Where is our protection and voting rights as minority shareholders?” he lamented.
  
  He also said: “What about the rights of other shareholders who had purchased KNM shares at varying prices, possibly well over the 90 sen mark per share?”

And recent issues with KNM doesn't bode well either. See past postings: KNM

For example, see Regarding KNM's MD Disposal Of Shares For A Cool RM64 Million.