KUALA LUMPUR: Palette Multimedia Bhd has received a takeover offer from a local investment fund to acquire a controlling 51% stake in the loss-making information technology company, according to sources close to the deal.
Two sources told The Edge Financial Daily that the fund, which is linked to a local life sciences company, is ready to make an offer for nine sen per share, which values Palette at RM28.76 million. The nine sen offer price represents a 50% premium to Palette’s closing share price of six sen last Friday.
When contacted, Palette chairman and managing director Eg Kah Yee admitted to having received a written takeover offer that came through a local bank-backed investment bank, but declined to elaborate.
“Over the years, we have some companies coming to us [with proposals]. But recently, yes, there is a fresh offer on the table to take a controlling stake in our company. We will study the deal, discuss [with board members], and figure out what’s the next step,” he told The Edge Financial Daily via telephone.
“We are looking at it, but [there’s] nothing concrete at the moment. We are not in a selling mode, but I believe anything is sellable and everything has a price tag,” Eg said.
Eg, 56, is the founder and single largest shareholder of Palette with a 17% stake. He is also the chief executive officer of Key Asic Bhd, a supplier of high performance, low power application-specific integrated circuit design and manufacturing services.
Founded in 1997, Palette is a solutions provider of broadband, wireless and networking products and services. Its clients include Telekom Malaysia Bhd, Celcom Axiata Bhd, Maxis Bhd and Shell Refining Co (Federation of Malaya) Bhd.
Based on Palette’s net assets of RM11.7 million or 3.66 sen per share as of Aug 31, 2016, the stock is currently trading at a price-to-book value of 1.6 times.
However, it is learnt that the potential buyer is willing to pay between two and 2.5 times Palette’s book value in order to gain a controlling stake in the company.
At the nine sen per share offer price, the prospective investor will have to fork out about RM14 million for the 51% stake in Palette.
While the actual structure of the takeover is still up in the air, the proposed deal is likely to trigger a mandatory general offer (MGO) as its shareholding crosses the 33% threshold level. Still, the prospective investor can seek a waiver for the MGO.
Meanwhile, it also remains to be seen as whether the fund is keen to run the company together with Eg, or prefer a buyout that would eventually see him exiting Palette.
After reporting seven consecutive years of losses, Palette returned to the black in the financial year ended May 31, 2016 (FY16) with a net profit of RM2.1 million on revenue of RM3.6 million. However, the group slipped back into the red in first quarter of FY17 with a net loss of RM516,000 on revenue of RM222,000. There was no comparable period as Palette had changed its year end to May 31 from Dec 31.
Going forward, Palette is expecting its mobile healthcare platform to be a key revenue driver for FY17. The platform, dubbed i-medic, connects doctors and specialists with patients, through the use of multiple medical and fitness-tracking devices, via a mobile application that runs on smart devices.
On the sidelines of Palette’s annual general meeting last month, Eg reportedly said the company will be focusing on the China market first, banking on the large population and growing affluence of the people, and has inked a deal with Shanghai International Medical Centre to set up an international mobile healthcare centre, known as “The 3rd Centre”.
“Patients will no longer need to visit the doctors face-to-face as frequently as before, and this is a big step forward for international medical tourism,” he said.
Due to its disruptive nature, some people even called Palette’s i-medic the “Uber” or “Alibaba” of the medical sector.
Interestingly, Palette also plans to diversify into traditional Chinese medicine (TCM) to expand its earnings base.
The company had on Nov 24 said it had entered into a term sheet to acquire a 51% stake in Genopharma Sdn Bhd (GSB) for RM1.53 million. GSB is principally involved in the trading of TCM, food and herbal supplements.
Currently, GSB products are sold at TCM clinics, pharmacies and chain stores. It also supplies herbal-based medicines and supplements to hospitals and clinics in Malaysia.
“The proposed acquisition will enable Palette to expand its earnings base and invest in a profitable business. Hence, the term sheet is to set the parameters of transaction and allow the parties to outline the terms and conditions, as well as their understanding and intention in respect of the proposed acquisition,” Palette said.
Palette added that it would issue new shares in the company as payment for the GSB stake.