On 20/3/2024, SCGM signed a Heads of agreement with the vendors of ERAMAS GLOBAL GROUP SDN BHD for the injection of the underlying company into SCGM at an UNDISCLOSED price to be satisfied by either CASH and/or SHARES at RM0.615 per share. The vendors will apply for exemption from Mandatory Offer if triggered.

The proposed asset injection is a related party transaction as three of the vendors are currently substantial shareholders of SCGM with collective interests of 24.15%. These shareholders are not permitted to vote on the transaction. 

Since there are common major shareholders for both transacting parties, why the need for HOA ? Why not just sign definitive agreement ?

My very own opinion is that as the vendors cannot vote on the transaction, they have to entice the rest of the shareholders of SCGM to vote in favor of the transaction by providing an attractive/cheap valuation on the target company. Once the proposal information is leak out, the share price of SCGM is likely to move up before the proposal is made public. Then it would be difficult for the directors of SCGM to justify to price the share issuance to the Vendors at RM0.615 which is only at slight premium to NTA. Pricing the new shares at much higher price is not in the best interest of the Vendors.

Therefore, I feel that the purpose of this HOA is to fix the new share issuance at RM0.615 which is at slight premium to NTA and market price at the time of announcement. 

Is this an indication that the Vendors know the share price will be much higher when the definite agreement is announced in due course ? Your guess is as good as mine.

Thank you.

Just88

*** I do own the stock. This is not a buy call and decide at your own risk.