This article first appeared in The Edge Malaysia Weekly on April 17, 2023 - April 23, 2023

Nowadays, one quite often sees public-listed companies scrapping their business plans after announcing them.

Last Thursday, two companies announced the termination of their business deals. Glove maker Hong Seng Consolidated Bhd cancelled its plan to buy an electric vehicle (EV) distribution business from CSH Alliance Bhd for RM20 million, just two months after the parties inked the share sale agreement.

The reason was that a preliminary feasibility study had concluded that the tract in Tanjung Malim, Perak that it intended to buy from CSH Alliance was “deemed to be unsuitable due to existing conditions of the land terrain which constrained the ideal size for two projects and their future expansion development”.

Meanwhile, property developer Yong Tai Bhd has terminated a mining agreement to undertake a gold mining project on a 100ha site in Bukit Kenderak in Pahang’s Lipis district. The mining agreement would have been valid for four years until May 2025, with an option for a five-year extension.

The board of directors terminated the mining agreement with immediate effect two years after it was signed in March 2021, owing to the non-fulfilment of a condition precedent, says Yong Tai in a bourse filing.

For perspective, between the announcing and aborting of the deals, shares in Hong Seng had declined 30% in the past two months, whereas Yong Tai’s share price plunged 74% in the last two years or so.

Certainly, it is wise for a company to terminate a deal that it discovers to be not commercially viable. Nonetheless, some cases might leave a bad aftertaste and raise eyebrows, particularly announcements of new ventures into industries to which investors are flocking to pick up shares.

This might be a lesson for the investing fraternity that investors should not get overly excited over companies’ corporate announcements until the deals materialise. After all, even if these deals came to fruition, it remains to be seen how soon and how significantly they will contribute to the companies’ bottom line.

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