Can or not?

ON Thursday, Can-One Bhd informed Bursa Malaysia that it had triggered the mandatory general offer (MGO) for Kian Joo Can Factory Bhd (KJCF) after it acquired an additional 0.49% in its associate for RM3.10 per share, thus increasing its stake to 33.39% from 32.9%.

In a separate filing, the Securities Commission said it had imposed sanctions on Can-One’s fourth-largest shareholder, Yeoh Jin Hoe, and his parties acting in concert (PACs) for failing to launch an MGO to acquire the remaining shares in KJCF after their collective shareholding increased above the 33% threshold.

The sanctions imposed include being reprimanded, being fined a penalty of RM455,000 and having their aggregate number of voting rights that may be exercised in KJCF being restricted to 33%.

Now, could it be possible that Yeoh and his PACs did not mean to breach the MGO level?

After all, is it worth it for CanOne to increase its stake in KJCF by 0.49%, and because of this, be obliged to extend an MGO and spend even more money acquiring the rest of KJCF that it does not own?

As a result of the MGO, Can-One will see its gearing level increasing to 2.19 times from 0.51 times.

The gearing level will increase tremendously because the cost of the MGO will be roughly RM811.48mil, while it would need to take over KJCF’s borrowings of some RM573.29mil.

Furthermore, there is little earnings impact with the additional 0.49% stake acquisition.

In fact, MIDF Research says that depending on the MGO acceptance levels, it will have a negative impact for Can-One in a range of 8% to 30% due to higher finance costs, which possibly offset the higher earnings contribution from KJCF.

On the other hand, it’s good news for shareholders of KJCF whose share price has been on a downward spiral over the last one year.

Its shares hit limit up on Friday, up 29.56% to RM2.63 upon the MGO announcement, as the indicative acquisition price for KJCF shares are RM3.10.

The premium being offered appears to be very generous, and based on its pre-suspension price of RM2.02, this is a 53.47% premium.