Further details on the Proposed Acquisition are set out in the ensuing sections.

Transcription

1 EA HOLDINGS BERHAD ("EAH" OR THE "COMPANY") PROPOSED ACQUISITION BY EAH OF 5,000,000 ORDINARY SHARES OF RM1.00 EACH IN MURASAKI TECHNOLOGY SDN BHD ("MTSB"), REPRESENTING 100% EQUITY INTEREST IN MTSB FROM CHIA KOK CHIN AND LOW TEE CHOW FOR A TOTAL PURCHASE CONSIDERATION OF RM18,000,000 TO BE FULLY SATISFIED VIA CASH ("PROPOSED ACQUISITION") 1. INTRODUCTION The board of directors of EAH ("Board") is pleased to announce that the Company had, on 25 July 2014, entered into a conditional share sale and purchase agreement ("SPA") with Chia Kok Chin and Low Tee Chow (collectively, the "Vendors") for the proposed acquisition by EAH of 5,000,000 ordinary shares of RM1.00 each in MTSB ("MTSB Share(s)") ("Sale Shares") representing 100% of the issued and paid up share capital of MTSB for a total purchase consideration of RM18,000,000 ("Purchase Consideration") to be fully satisfied via cash ("Proposed Acquisition"). Further details on the Proposed Acquisition are set out in the ensuing sections. 2. DETAILS OF THE PROPOSED ACQUISITION Subject to the terms and conditions of the SPA, the Vendors as legal and beneficial owners shall sell and EAH relying on the warranties and representations by the Vendors shall purchase the Sale Shares, free from any and all encumbrances and with all rights, benefits and advantages now or thereafter attaching thereto, including all bonuses, rights, dividends and distributions declared, made and paid as from the completion date of the SPA for the Purchase Consideration to be fully satisfied in cash. 2.1 Information on MTSB MTSB was incorporated in Malaysia on 11 September 2013 under the Companies Act, 1965 as a private limited company under the name of Minswoon Enterprise Sdn Bhd. The Company assumed its present name on 21 April As at 14 July 2014, being the latest practicable date ("LPD") of this announcement, the authorised share capital of MTSB is RM5,000,000 comprising 5,000,000 MTSB Shares, of which RM5,000,000 comprising 5,000,000 MTSB Shares have been issued and fully paidup. The principal activity of MTSB involves e-business software application, software integration and related services. MTSB offers a range of products and services, mainly its self-developed range of e-solutions which are customisable for various business enterprise functions such as customers relation management, finance, procurement, human resource management, inventories management and store management. Further details on MTSB's range of products and services are set out in Section 5 of this announcement. The directors and shareholders of MTSB as well as their respective shareholdings in MTSB as at the LPD are set out below:- Directors and shareholders Nationality < Direct > < Indirect > No. of MTSB No. of MTSB Shares % Shares % Chia Kok Chin Malaysian 4,000, Low Tee Chow Malaysian 1,000,

2 Based on the latest audited accounts of MTSB for the financial period from 11 September 2013 to 30 June 2014, the net assets ("NA") of MTSB was RM7.01 million while the profit after tax attributable to owners of the company ("PAT") recorded was RM2.01 million with revenue of RM4.26 million. All of MTSB's revenue for the said financial period was derived from Malaysia. 2.2 Basis and justifications of determining the Purchase Consideration The Purchase Consideration was arrived at on a willing-buyer willing-seller basis, after taking into consideration the following:- i. based on the PAT of MTSB of RM2.01 million in accordance with the latest audited financial statements for the financial period from 11 September 2013 to 30 June 2014, the Purchase Consideration represents a historical price-toearnings multiple of approximately 8.94 times for the 100% equity interest in MTSB; ii. iii. the current order book of MTSB as at the LPD of approximately RM4.94 million which will last until June 2015 as set out below and the future earnings potential of MTSB; and the synergistic benefits of the Proposed Acquisition and in view that MTSB's e-business software application and software integration business is complementary to EAH Group's ICT business. As at the LPD, the list of contracts in hand of MTSB are set out as follows:- Customer Type Job Description Balance to be billed RM Commencement Month Expected Completion Month Retail multinational corporation ("MNC") 1 Hypermarket E-solutions software maintenance services E-solutions software maintenance services and implementation 38,000 October 2013 September ,232,420 January 2014 December 2014 Telecommunication Software upgrade 517,782 January 2014 December 2014 Retail MNC 2 Engineering Consultancy Information technology E-solutions software maintenance services and implementation E-solutions software maintenance services E-solutions software maintenance services E-solutions implementation services 610,000 July 2013 June ,000 October 2013 October ,500,000 June 2014 February ,000 June 2014 March 2015 Total 4,940,202 2

3 For the purpose of assessing the reasonableness of the Purchase Consideration, reference was made to the valuation statistics of public companies listed on Bursa Malaysia Securities Berhad ("Bursa Securities") with principal activities which are broadly comparable to the businesses of MTSB, with market capitalisation between RM10.00 million to RM million. However, it should be noted that there is no company listed which may be considered to be identical to MTSB in terms of, inter-alia, composition of business activities, scale of business operations, risk profile, asset base, accounting and tax policies, track record, future prospects, competitive environment, financial positions and that such business may have fundamentally different profitability objectives. It should also be noted that any comparison made with respect to the comparable companies is merely to provide an indicative valuation of MTSB. The valuation statistics using price-toearnings ("PE") multiple and enterprise value ("EV")/ earnings before interest, tax, depreciation and amortisation ("EBITDA") multiple are set out in the following page. The following valuation ratios have been used to arrive at the valuation statistics:- Valuation multiple PE EV/ EBITDA General description PE multiple illustrates the multiple of the market value of a company's shares relative to its historical earnings per share ("EPS") EV is the sum of a company's market capitalisation, preferred equity, minority interests, short and long term debt less its cash and cash equivalents. The EV/ EBITDA multiple illustrates the market value of a company's business relative to its historical pre-tax operation cash flow performance, without regard to the company's capital structure The price-to-book multiple was not used as the basis of valuation in view that the said multiple is only meaningful to the extent of the value of each share is backed by tangible assets and would be more applicable to asset-based companies. Other valuation multiple comparisons were not used as it may not be deemed applicable or appropriate with respect to MTSB. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 3

4 Comparable companies Based on the latest audited FYE Principal activities Market EV/ Capitalisation PE *1 EBITDA *2 RM'million times times IFCA MSC Berhad ("IFCA") 31 December 2013 IFCA is principally involved in the research and development of enterprise-wide business solutions while its subsidiary companies are principally involved in the provision of turnkey solutions and installation and servicing of computer hardware and networks Ingenuity Consolidated Berhad ("Ingenuity") 31 March 2013 Ingenuity is an investment holding company, while its subsidiary companies are principally involved in the provision of total solutions provider in information and communication technology ("ICT") including the business of marketing and distribution of multimedia products and accessories, marketing of computer hardware and software for business solutions, and distributes telecommunication products, services, accessories and devices TFP Solutions Berhad ("TFP") 31 December 2013 TFP is an investment holding company while its subsidiary companies are principally involved in the provision of business productivity solutions and services including enterprise resource planning solutions and implementation of products of Oracle, Microsoft Dynamics and SAP, customer relationship management solutions, human capital management solutions, infrastructure sales and services, and offers network security, information technology ("IT") solutions, and hardware and software maintenance services Diversified Gateway Solutions Berhad ("Diversified") Systech Bhd ("Systech") 31 March 2013 Diversified is an investment holding company while its subsidiary companies are principally involved in the provision of advisory and consultancy for computer software solutions, provision of computer networking solutions and system integration and distribution and maintenance of computer networking, network security, storage and network management solutions. 31 March 2013 Systech is an investment holding company while its subsidiary companies are principally involved in software research and development provision of the related software services and trade in software related peripherals High * Low Simple average * MTSB (Source: S&P Capital IQ and the respective annual reports of the companies) 4

5 Notes:- *1 *2 *3 Based on the closing market price as at LPD where EPS is based on the audited financial statements of each company for the latest FYE available Market capitalisation in the calculation of EV is computed by multiplying the total issued and paid-up share capital of each company as at latest FYE available with the closing market price as at LPD while other components in EV and EBITDA are based on the audited financial statements of each company for the latest FYE available Excluding outliers IFCA and Diversified The average PE multiple of MTSB of 8.94 times as implied by the Purchase Consideration is below the simple average of the PE multiple of the comparable companies of times and below the lowest PE of the comparable companies of times. The average EV/ EBITDA multiple of MTSB of 6.18 times as implied by the Purchase Consideration is below the simple average of the EV/ EBITDA multiple of the comparable companies of 9.87 times and below the lowest EV/ EBITDA multiple of the comparable companies of 7.56 times. THE REST OF THIS PAGE HAS BEEN INTENTIONALLY LEFT BLANK 5

6 2.3 Liabilities to be assumed by EAH Save for the obligations and liabilities pursuant to the SPA and the audited financial statements of MTSB, there are no other liabilities including contingent liabilities and/ or guarantees to be assumed by EAH arising from the Proposed Acquisition. 2.4 Source of funds The Proposed Acquisition will be funded through the proceeds raised from the previous rights issue exercise of EAH completed on 24 June Additional financial commitment required Save for the Purchase Consideration, there are no additional financial commitments required by EAH to put the business of MTSB on-stream. As set out in Section 2.1 of this announcement, MTSB is an on-going business entity. 2.6 Information on the Vendors i. Chia Kok Chin Chia Kok Chin, a Malaysian aged 46, obtained his Bachelor of Business Degree majoring in Computing from Deakin University, Melbourne, Australia in He started his career as an Analyst Programmer with Glaxo (Malaysia) Sdn Bhd in He later joined Focus Technology Sdn Bhd in 1993 as a System Analyst. In 1994, he joined Phileo Allied Bank Sdn Bhd, where among the posts he held was as System Architect, Business Analyst and Project Manager. ii. Low Tee Chow Low Tee Chow, a Malaysian aged 49, obtained his Diploma in Computer Science from ICL Computer Limited, United Kingdom in He started his career as a System Support Programmer for Automation & Computer Engineering (M) Sdn Bhd in 1985 and later joined Focus Group in Spending 12 years in Focus Group, he held various positions, amongst others, Programming Manager, Technical Manager and R&D Manager. 3. SALIENT TERMS OF THE SPA 3.1 Sale and Purchase of Sale Shares In consideration of the Purchase Consideration which shall be satisfied in cash by EAH in favour of the Vendors pursuant to the terms of the SPA, the Vendors as legal and beneficial owners shall sell and EAH relying on the warranties and representations by the Vendors contained in the SPA shall purchase the Sale Shares free from any and all encumbrances and with all rights, benefits and advantages now or hereafter attaching thereto, including all bonuses, rights, dividends and distributions declared made and paid as from the completion date upon the terms and subject to the conditions contained in the SPA. 3.2 Conditions Precedent Completion of the SPA is conditional on:- i. EAH conducting or cause to be conducted due diligence on MTSB to the satisfaction of EAH; 6

7 ii. iii. the Vendors obtaining the approval of the board of directors of MTSB for the transfer of the Sale Shares to EAH; and the approvals, consents authorisations, permits or waivers of any other relevant governmental or regulatory body and any other third parties necessary or appropriate to carry out the sale and purchase of the Sale Shares pursuant to the terms of the SPA having been obtained. 3.3 Terms of payment The Purchase Consideration shall be paid in cash based on the following manner in accordance with the SPA:- Terms of Settlement Timing % of Purchase Consideration RM'000 Deposit Upon execution of the SPA ,700 Balance of Purchase Consideration Payable on the completion date of the SPA, being a day falling within 14 business days after the date the last of the Conditions Precedent is satisfied or such other date as EAH and the Vendors may agree in writing. The Conditions Precedent shall be satisfied not later than 30 September 2014 or such other extended period as may be agreed by EAH and the Vendors in writing ,300 Total 18, Breach/ Termination If EAH shall fail to complete the sale and purchase of the Sale Shares in accordance with the SPA on completion date in the manner stipulated in Clause 5 of the SPA and/ or breaches any of the terms and/ or its warranties thereunder, then the Vendors shall be entitled to either:- (i) (ii) claim for specific performance of the SPA; or terminate the SPA and upon such termination, EAH shall pay to the Vendors all reasonable costs and expense incurred by the Vendors pursuant to the negotiation and preparation of the SPA and any incidental costs thereto; after which the Vendors shall return the Deposit sum and thereafter have no other claims whatsoever against EAH and the Vendors shall be entitled to sell or dispose of the Sale Shares freely to any other party or parties. If any of the Vendors ("Defaulting Vendors") shall fail to complete the sale and purchase of the Sale Shares in accordance with the SPA on completion date in the manner stipulated in Clause 5 in the SPA and/ or breaches any of their warranties thereunder and/ or terms of the SPA, then the Purchaser shall be entitled to either:- (i) (ii) claim for specific performance of the SPA; or terminate the SPA and upon such termination, the Vendors shall refund EAH the Deposit and the Defaulting Vendors shall pay to EAH all reasonable costs and expenses incurred by EAH pursuant to the negotiation and preparation of the SPA and any incidental costs thereto; after which EAH shall have no other claims whatsoever against the Vendors and the Vendors shall be entitled to sell or dispose of the Sale Shares freely to any other party or parties. 7

8 3.5 Completion Completion shall take place within fourteen (14) business days after the date the last of the Conditions Precedent is satisfied or such other date as EAH and the Vendors may agree in writing. 4. RATIONALE FOR THE PROPOSED ACQUISITION EAH is an investment holding company and its subsidiaries are principally involved in the e- business consultancy and hardware system integration, provision of business intelligence software and development, IT service and management consultancy, research, design, development, sales and distribution of Radio Frequency Identification based tracking system. The Proposed Acquisition shall allow EAH and its subsidiaries ("EAH Group" or "Group") to further expand its existing business operation into the business of e-business software application, software integration and related services, in view of the prospects of MTSB as set out in Section 5 of this announcement. Further details on MTSB's range of products and services are set out in Section 5 of this announcement. The synergistic benefits expected to be derived from the Proposed Acquisition are, amongst others, technology and knowledge sharing, cross-marketing of products and services and referencing of customers within the enlarged EAH Group. Currently, EAH Group procures e-business software applications for various business enterprise functions such as, amongst others, customers relation management, finance, procurement, human resource management, inventories management and store management, from external suppliers such as MTSB whenever these applications are required by EAH's customers. As such, the Proposed Acquisition shall enable EAH Group to provide these products in-house via MTSB, thus is expected to improve the costs and margins of the Group. The Proposed Acquisition is in line with the Group's strategy to constantly search and explore new opportunities which may potentially enable the Group to gain wider and better recognition in the ICT industry. The Proposed Acquisition shall complement EAH's current ICT business and is expected to contribute positively to the future development and growth of the Group. In addition, MTSB had recorded PAT of RM2.01 million based on the latest audited financial statements for the financial period from 11 September 2013 to 30 June 2014, which is since MTSB's incorporation. Coupled with the current order book of MTSB of RM4.94 million which will last until June 2015, the Proposed Acquisition is expected to be earnings accretive. Upon completion of the Proposed Acquisition, MTSB will become a wholly-owned subsidiary company of EAH Group. Thus, EAH Group is able to consolidate the results of MTSB, which is expected to contribute positively to the financial performance of EAH Group in the future. 5. PROSPECTS OF MTSB The principal activity of MTSB involves e-business software application, software integration and related services. MTSB offers a range of products and services which are centred on its self-developed range of e-solutions which are robust, server-centric and highly customisable to suit its clients needs and requirements. The range of e-solutions developed by MTSB covers a wide range of business needs and demands, enabling its end users to coordinate and perform tasks in a more organised and efficient way. Amongst the range of e-solutions offered by MTSB are:- i. Customers Relation Management ii. Finance iii. Procurement Management iv. Human Resources Management v. Inventories Management 8

9 vi. Store Management (for multi-level marketing companies) MTSB s products are built on the current technology available and constantly upgraded to ensure optimum performance, such as, amongst others, Open Java Standard, Structured Query Language (SQL) American National Standards Institute (ANSI) Standard, Struts Application Framework, Tiles Advance, Wireless Technologies and IBM e-business Framework. These have made MTSB s e-solutions highly adaptable and are suited to run on various platforms such as, amongst others, IBM Frameworks, Windows and UNIX. MTSB has a strong customer base which comprised of multi-national corporations and larger sized small and medium enterprises in Malaysia. The revenue derived from its customers comprised of new roll-out of e-solutions, modifications and subsequent maintenance support services, the latter which provide MTSB with a strong recurring income. MTSB s revenue strategy is two (2)-pronged, whereby it will continue to build stronger relationship with its current customers, and to continuously scout for new customers and new business opportunities both locally and abroad. Based on the above, the current order book of RM4.94 million as at the LPD which will last until June 2015, and the list of contracts in hand as set out in Section 2.2 of this announcement, the management of MTSB believes that MTSB would be able to contribute positively to the performance, growth and expansion of EAH Group. (Source: Management of MTSB Group) 6. RISK FACTORS MTSB is generally subject to certain risks inherent in the ICT business. As the EAH Group is involved in similar businesses as MTSB, the Group may be exposed to similar risks after the completion of the Proposed Acquisition. In particular, the risks that may have an impact on MTSB's business, operations and financial performance, which may not be exhaustive, are set out below:- 6.1 Political and economic risks MTSB's financial and business prospects and the industry which it operates in, will depend to some degree on the developments in the economy and political and regulatory front in Malaysia. Amongst the economic, political and regulatory factors are changes in inflation rates, interest rates, war, terrorism activities, riots, expropriations, changes in political leadership and unfavourable changes in the governments' policies in the ICT sector. The EAH Group will continue to adopt effective measures such as prudent management and efficient operating procedures to mitigate these factors. However, there can be no assurance that adverse economic, political and regulatory changes will not materially affect the EAH Group's business. 6.2 Industry risks The performance of MTSB is subject to risks inherent in the ICT industry. These may include, amongst others, entry of new players, shortage of skilled workforce, increase in cost of labour, cost of operations, changes in government policies affecting the industry, changes in general economic, business, credit and interest rate condition and introduction of new technology and new products. 9

10 Whilst the EAH Group seeks to mitigate these risks through its continued initiative in research and development for new products, employment of highly skilled technical personnel, implementing prudent business strategies and carrying out continuous review of its operations, there is no assurance that any change to the above factors, which are beyond the EAH Group's control, will not materially affect its business. 6.3 Competition risks MTSB may face intense competition from existing competitors and new entrants into the market in the future, both locally and internationally which offer similar products and services. In view of the competitive market environment, MTSB intends to sharpen its competitive edge by continuously developing new measures to counter competition which will include, amongst others, products differentiation and innovation in products and services. MTSB will continue to focus on providing highly reliable technology that is able to handle multiple tasks according to user requirements and also investments in products innovation to ensure its competitiveness. However, there can be no assurance that MTSB would be able to sustain its competitiveness against current and future competitors. 6.4 Acquisition risks Although the Board believes that EAH Group may derive benefits from the Proposed Acquisition, there is no assurance that the anticipated benefits of the Proposed Acquisition will be realised or that the Group will be able to generate sufficient revenues from the Proposed Acquisition to offset the associated acquisition costs incurred. There is also no assurance that the EAH Group is able to maintain or improve the standards of quality and services of the business of MTSB. However, the Company has mitigated such risk by adopting prudent investment strategies and conducting assessment and review, coupled with the due diligence review being undertaken, prior to making its investment decisions. 6.5 Dependence on key personnel MTSB's future success will depend upon its ability to attract and retain its key personnel after the Proposed Acquisition. The loss of key personnel of MTSB may have an unfavourable and material impact on the performance of MTSB as the continued success of the business is considerably dependent on the combined efforts of the management team of MTSB. As such, the Company will continuously consider measures to attract and retain MTSB's key personnel by providing incentives and competitive remunerations for continued and future satisfactory performance. EAH Group shall also organise both external and in-house training programmes to improve its personnel's existing skills and ensure competency in all aspects. 7. FINANCIAL EFFECTS OF THE PROPOSED ACQUISITION The Proposed Acquisition will not have any effect on the issued and paid-up share capital and substantial shareholders' shareholdings of the Company as it will be fully satisfied in cash. In addition, the Proposed Acquisition is not expected to have a material effect on the net assets and gearing of the Group for the financial year ending 31 December

11 The Proposed Acquisition is expected to be earnings accretive for the financial year ending 31 December For illustration purposes, based on the financial year ended ("FYE") 31 December 2013 and the following assumptions:- i. assuming the Proposed Acquisition had been completed on 1 January 2013 (being the beginning of the FYE 31 December 2013); ii. iii. assuming none of the outstanding warrants 2010/ 2015 ("Warrants A"), warrants 2014/ 2019 ("Warrants B") and warrants 2014/ 2019 ("Warrants C") are exercised prior to the completion of the Proposed Acquisition; the audited PAT attributable to equity holders of EAH amounting to RM8.98 million; iv. the enlarged issued and paid-up share capital of EAH as at the LPD of 850,353,000 ordinary shares of RM0.10 each in EAH; and v. the audited PAT of MTSB for the financial period from 11 September 2013 to 30 June 2014 of RM2.01 million, the EPS of EAH Group is expected to increase from 1.06 sen to 1.29 sen. Barring any unforeseen circumstances, the Proposed Acquisition is expected to contribute positively to the future earnings of EAH Group. 8. APPROVALS REQUIRED The Proposed Acquisition is not subject to the approval of the shareholders of the Company or other relevant authorities. 9. HIGHEST PERCENTAGE RATIO The highest percentage ratio applicable to the Proposed Acquisition pursuant to Rule 10.02(g) of the ACE Market Listing Requirements of Bursa Securities is 22.40%, calculated based on the audited PAT of MTSB for the financial period from 11 September 2013 to 30 June 2014 as compared to the audited consolidated PAT of EAH Group for the FYE 31 December INTERESTS OF DIRECTORS, MAJOR SHAREHOLDERS AND/ OR PERSONS CONNECTED None of the Directors, major shareholders of EAH and/ or persons connected to them have any interest, whether direct or indirect, in the Proposed Acquisition. 11. DIRECTORS' STATEMENT The Board, having considered all aspects of the Proposed Acquisition, including the rationale for the Proposed Acquisition, prospects of MTSB Group and the risk factors as set out in Sections 4, 5 and 6 of this announcement, respectively, is of the opinion that the Proposed Acquisition is in the best interest of the Company and the terms and conditions of the SPA are fair and reasonable. 12. ESTIMATED TIMEFRAME FOR COMPLETION Barring any unforeseen circumstances and subject to all relevant approvals being obtained, the Proposed Acquisition is expected to be completed by the third quarter of

12 13. DOCUMENTS FOR INSPECTION A copy of the SPA will be made available for inspection at the Registered Office of EAH at 149A, Jalan Aminuddin Baki, Taman Tun Dr Ismail, Kuala Lumpur during normal business hours from Monday to Friday (except public holidays) for a period of three (3) months from the date of this announcement. This announcement is dated 25 July