KUALA LUMPUR: Apex Equity Holdings Bhd is proposing a merger with Mercury Securities Sdn Bhd through a RM140 million cash plus share deal.

Apex Equity will be taking over Mercury Securities’ stockbroking, corporate advisory and other related businesses for RM140 million, of which RM48 million will be settled in cash and RM92 million via issue of new shares, according to the filing to Bursa Malaysia.

Apex also proposes a share placement of 20 million new shares, about 10% of its existing issued share capital, at an issue price to be determined later to raise fresh cash to finance the merger.

It is worth noting that Mercury Securities will eventually be the single largest shareholder with a 31% stake in the merged entity.

Given its shareholding, in terms of board representatives, Mercury has the right to nominate not more than 33% of board of directors’ composition, one of whom will be the managing director or chief executive officer, after the merger.

Apex said if the merger materialises, it will pay RM22 million cash within three market days, followed by issuing 100 million new shares at the issue price of 92 sen per share to Mercury within 10 market days.

Apex said the issue price was arrived at after taking into consideration the five-day volume weighted average market price of Apex shares of 91.12 sen until today.

The final tranche of payment will be RM26 million cash within 10 market days after fulfilling all pre-requisite conditions before the deal, including shareholders’ approval from both parties and Securities Commission’s approval.

Both parties have entered into a Heads of Agreement for the proposed merger.

Apex said the cash portion of the deal will be funded via internally-generated funds and proceeds raised from a proposed private placement, which is inter-conditional with the proposed merger.

Subsequent to the proposed merger and placement shares, Apex said Mercury will hold an approximately 31% stake in the listed entity.

Apex’s annual report shows that the largest shareholder as at March 30 was ACE Investment Bank Ltd, which held a 25.01% stake, followed by Fun Sheung Development Ltd’s 15.78%.

Apex told the stock exchange today that based on the acquisition consideration of RM140 million and Mercury’s adjusted profits after tax for the trailing 12-month financial period ended July 31, 2018 of RM9.4 million, this translates into a price to earnings multiple (PER) of 14.89 times.

Apex said this valuation is in line with the PER of listed companies involved in the similar business.

As at Sept 20, 2018, Mercury’s total issued share capital is RM20 million comprising 20 million ordinary shares, with audited consolidated shareholders’ funds of RM124.92 million as at Oct 31, 2017.

Mercury’s directors are Chew Sing Guan, Datuk A Rahman Safar, Loke Hooi Pheng and Mohd Kamsul Karim.

Mercury is one of the three non-bank backed players licensed by the SC that can undertake full-fledged corporate advisory services including initial public offerings, mergers and acquisitions, takeovers and privatisations, equity fund raising, underwriting and placement of securities.

Apex said the merger will provide it with an opportunity to expand into Mercury’s full-fledged corporate advisory business, and leverage on the latter’s expertise and experience of the management team and employees in the stockbroking and corporate advisory business.

Apex also said the corporate exercise provides an opportunity for it to increase the scale and the size of its business in the stockbroking industry and add other channels of income, while enhancing operational efficiencies with the combined operations such as integration of information technology systems and distribution channels.

The filing also disclosed that Mercury generated RM9 million of profit after tax for the financial year ended Oct 31, 2017, and RM7.8 million profit after tax for the nine-month period ended July 31 this year.

Apex’s share price closed unchanged at 90 sen today, giving it a market capitalisation of RM182.38 million.

Year-to-date, the counter has fallen by 37% from RM1.43 on Dec 29 last year.