Hostile takeover? Really?

FEDERAL International Holdings Bhd (FIHB) is one of the older companies on Bursa Malaysia. Anybody going past Petaling Jaya town centre would not miss the headquarters at Menara Choy Fook On that is located next to the city council.

The company, which manufactures furniture and all kinds of kitchen sets, is controlled by the family of Datuk Dr Choy Fook On. Based on the company’s latest annual report, Dr Choy and family are the largest shareholders with close to 30%.

The second largest shareholder is Voon Sze Lin with about 7%. The rest of the names in the top-30 list own less than 2.5% of the company, reflecting how tightly the shares are held.

On June 19, Muar Ban Lee Group Bhd (MBL), a plantation group based in Johor, emerged as a substantial shareholder with 5.09%. According to a news report, Muar Ban Lee Group wants to own a substantial stake in FIHB.

It is rather strange why the Johor based company wants to take up a substantial stake in the low profile furniture company. FIHB manages a turnover of between Rm150mil and Rm200mil per annum on average and ekes out a gross profit margin of 20%.

Its main corporate client is Starbucks Corp where the group manufactures and installs the furniture and fitting for the coffee chain’s kitchen, countertop, cabinets and display shelves. The Starbucks contract makes up for the bulk of its business as it serves the coffee chain’s Asia-pacific needs.

Apart from Starbucks, FIHB also serves other retail chain specialists such as Coach, Borders book store, Krispy Kreme, Mcdonald’s and Target.

So FIHB has a niche in the highly competitive furniture industry. But its profits are not as big as other manufacturers such as the glove players because demand is stable and competition is high.

So why would MBL want to embark on a takeover of FIHB? Also, the Choy family owns most of the convertible instruments in FIHB. It is a defensive tool against any takeover.

Surely, MBL should be aware that having a substantial stake in FIHB can be an expensive exercise. So is this speculation of a takeover really true?