KUALA LUMPUR (July 30): KAF Investment Bank Bhd (KAF IB) is making a mandatory general offer (MGO) to listed entity KAF-Seagrott & Campbell Bhd (KAFSC) at RM2.70 per share — a nearly 30% premium over the last traded price of RM2.08.

The MGO comes after KAF IB has entered into an agreement to buy a 76.74% equity interest, or 92.09 million shares, in KAFSC (fundamental: 1.45; valuation: 1.4) from Akka Sdn Bhd, Akka Holdings Sdn Bhd, Datuk Khatijah Ahmad and Thariq Usman Ahmad for RM248.64 million cash.

The MGO would pave way for KAF IB to take the securities firm private as the public shareholding spread would likely to be very narrow, said a source which is familiar with the deal.

Toda’s announcement confirms theedgemarkets.com’s yesterday article on KAF-Seagroatt & Campbell may be taken private. The article said that the acquisition was likely to be undertaken by a vehicle linked to the major shareholders of the stockbroking group.

KAF IB said in the announcement to Bursa Malaysia that the proposed acquisition would see the investment bank (IB) owning the stockbroking, fund management business and research. Further, the proposed acquisition represents a consolidation of group-wide entities involved in financial services under the holding company of KAF IB.

“The proposed acquisition represents a consolidation of group-wide entities involved in financial services under the holding company of KAF IB. It is in line with the requirements of Bank Negara Malaysia to promote the creation of ‘financial group’ under Part VII of the Financial Services Act, 2013,” KAF IB added.

In terms of financial performance, for the nine months period ended Feb 28, (9MFY15), the group saw its net profit plunge 63.3% to RM4.99 million, from RM13.59 million a year ago, mainly due to lower brokerage and management fees income generated by the stockbroking and asset management segments, respectively. Revenue for 9MFY15 fell 19.3% to RM30.73 million, from RM38.09 million in 9MFY14.

On KAF IB, it is majority owned by founder and managing director Khatijah, who is selling her stake in KAFSC. The low-profile unlisted entity is the second largest IB in Malaysia by asset size, with total assets of RM9.86 billion as at end-May this year. The largest, RHB Investment Bank Bhd, has over RM13 billion, by comparison.

KAF IB’s niche is in the investing and trading of money market and fixed income securities. “What’s unique about KAF is that it is almost purely reliant on trading and investment of debt securities. It is not deal-driven like the big bank-backed IBs like CIMB Investment and Maybank Investment,” an analyst observes.

KAF IB is one of only three non-bank backed IBs in the country, the others being Kenanga Investment Bank Bhd and MIDF Amanah Investment Bank Bhd.

Trading in KAFSC’s shares were suspended prior to this announcement, with trading to resume tomorrow.

KAFSC was last traded at RM2.08, giving a market capitalisation of RM249.6 million.

(Note: The Edge Research's fundamental score reflects a company’s profitability and balance sheet strength, calculated based on historical numbers. The valuation score determines if a stock is attractively valued or not, also based on historical numbers. A score of 3 suggests strong fundamentals and attractive valuations.)