This article first appeared in The Edge Financial Daily on February 15, 2019 - February 21, 2019

KUALA LUMPUR: Can-One Bhd has managed to get shareholders’ approval to take Kian Joo Can Factory Bhd private at a premium price of RM3.10 per share, although there are concerns that the company will have to raise debts to fund the RM917.2 million privatisation exercise .

At yesterday’s extraordinary general meeting (EGM), the resolution to launch the takeover bid for Kian Joo was passed with 99.07%, or 87.73 million shares, voting in favour and barely 0.93% voting against it.

Can-One’s single largest shareholder Yeoh Jin Hoe, holding 27.4% stake, and his parties acting in concert are believed to have voted for the privatisation deal.

Minority shareholders who attended the EGM told The Edge Financial Daily that possible rise in debts was the main concern raised in the meeting yesterday.

According to the circular to shareholders, Can-One’s net gearing is expected to rise to 2.13 times from 0.51 times upon full acceptances under the mandatory general offer (MGO) as it will raise debts for the acquisition.

Meanwhile, Can-One’s total borrowings are expected to jump by four times from RM499.652 million as at Dec 31, 2017 to RM2 billion. This includes the estimated borrowings of Can-One of RM917.2 million to fund the expenses relating to the MGO, as well as the total bank borrowings of Kian Joo of RM573.29 million.

Addressing these concerns, Can-One’s advisers said the company is able to reduce its gearing ratio over the time.

“If you were to look back at our history, when we first acquired 32.9% stake in Kian Joo (in 2012), our gearing was at 3.1 times. But today, it has dropped to 0.6 times. This has been our direction all along. But we need to separate the gearing for operational need and investment need.

At certain time, the gearing will go up because there is an investment need. But over the long run, we will bring it down,” a company’s adviser told the shareholders at the EGM.

Commenting on why Can-One is willing to pay such a hefty premium for the additional stake in Kian Joo, a spokesperson pointed out that now is a good opportunity to take the aluminium can maker private.

“From Can-One shareholders’ perspective, we won’t be able to buy Kian Joo at RM3.10 (during the good time). Yes, some might argue that RM3.10 is expensive, but if they come to their senses, it is almost impossible to acquire Kian Joo at RM2 something,” said the spokesperson at the meeting.

He highlighted that Can-One and Kian Joo are the industry leaders at this point in time, so the two must come together to fight and compete in the region.

“Business has its ups and downs. Where do we stand today? Yes, Kian Joo is currently facing some headwinds, but we should look at Can-One and Kian Joo together, as an enlarged group that could compete better in the regional market,” he elaborates.

Interestingly, a minority shareholder has suggested to the board that the company to consider a share swap exercise with Kian Joo, rather than an all-cash deal to avoid high gearing.

“That’s something that is very interesting. We will take note of that, and we will look into it,” the spokesperson replied.

Those who have keeping track of the Can-One and Kian Joo saga would know that Yeoh always has an ambitious plan to form an integrated packaging firm by merging the two companies.

Now the ball is on Kian Joo’s court whether its shareholders will accept the offer.

To recap, Can-One on Dec 13 announced that it had signed a conditional share sale agreement with Tan Kim Seng to buy his 0.49% stake in Kian Joo for RM6.71 million cash, or RM3.10 per share. The transaction price is at a premium of 51% to its five-day volume weighted average price. Consequently, Can One is obliged to extend a mandatory general offer to buy the remaining 66.61% stake not already own.

Tan, 65, has been a veteran of Box-Pak (M) Bhd, a 54.99%-owned subsidiary of Kian Joo.

Yesterday, shares in Can-One rose 3.9% or 10 sen to close at RM2.68 with 126,700 shares traded, while Kian Joo jumped 4.5% or 13 sen to close at RM3 with 1.94 million shares traded.

The article has been amended for accuracy