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YGL CONVERGENCE BERHAD ("YGL" or "Company") ACQUISITION BY YGL OF 192,000 ORDINARY SHARES OF SINGAPORE DOLLAR ONE (S$1.00) EACH IN ELITUS ASIA PACIFIC PTE LTD ("ELITUS") REPRESENTING 60% OF THE ISSUED AND PAID-UP SHARE CAPITAL FOR A TOTAL CASH CONSIDERATION OF RM1.3 MILLION ("PROPOSED ACQUISITION")

YGL CONVERGENCE BERHAD

Type

Announcement
SubjectYGL CONVERGENCE BERHAD ("YGL" or "Company")
ACQUISITION BY YGL OF 192,000 ORDINARY SHARES OF SINGAPORE DOLLAR ONE (S$1.00) EACH IN ELITUS ASIA PACIFIC PTE LTD ("ELITUS")
REPRESENTING 60% OF THE ISSUED AND PAID-UP SHARE CAPITAL FOR A TOTAL CASH CONSIDERATION OF RM1.3 MILLION ("PROPOSED ACQUISITION")

Contents :

1. INTRODUCTION

      The Board of Directors of YGL Convergence Berhad. (“YGL” or "Company") is pleased to announce that the Company has on 16 December 2005 entered into a conditional Share Sale Agreement (“Agreement”) with Toh Keng Ching and Heng Su-Lin (collectively referred to as the “Vendors”) for the acquisition by YGL of One Hundred and Ninety Two Thousand (192,000) ordinary shares of Singapore Dollar One (S$1.00) each (“Sale Shares”), representing 60% of the equity interest in Elitus Asia Pacific Pte Ltd (“Elitus”), for a total cash consideration of RM1.3 million only (“Proposed Acquisition”).

      As a result of the Proposed Acquisition, Elitus will become a 60% owned subsidiary of YGL. The Vendors of the Sale Shares, namely Toh Keng Ching and Heng Su-Lin, will respectively continue to hold 20% each in Elitus.

2. THE PROPOSED ACQUISITION
    2.1 Details of the Proposed Acquisition
        The Proposed Acquisition involves the acquisition of the Sale Shares by YGL from the Vendors for a total purchase consideration of RM1.3 million to be fully satisfied by cash as follows:-

    Vendors
    Existing
    no. of shares held in Elitus
    %
    No. of Sale Shares
    %
    Purchase Consideration
    (RM)
    Toh Keng Ching
    160,000
    50
    96,000
    30
    650,000
    Heng Su-Lin
    160,000
    50
    96,000
    30
    650,000
    Total
    320,000
    100
    192,000
    60
    1,300,000

        The purchase consideration shall be payable by YGL to the Vendors in the manner of the deposit sum of RM390,000 representing 30% of the total purchase upon the execution of the Agreement, while RM910,000 representing 70% of the purchase consideration shall be payable to the Vendors upon completion of the Proposed Acquisition.
    2.2 Background information of Elitus

        Elitus was incorporated in Singapore on 3 April 1997 as a limited exempt private company. As at todate, the authorised share capital of Elitus is S$500,000 comprising 500,000 ordinary shares of S$1.00 each (“Shares”), of which S$320,000 comprising 320,000 Shares have been issued and fully paid-up. As at todate, the directors and major shareholders of Elitus are Toh Keng Ching and Heng Su-Lin.
        The principal business of Elitus is in the provision of software consultancy services. The company’s principal office is in Singapore and it has a representative office in Shanghai, China. Elitus is a consulting company supporting Tier 1 Enterprise Resource Planning (“ERP”) solutions. Like YGL, it is also an authorised reseller for SSA Global TechnologiesTM Inc.

        Elitus commenced operations in July 2005. Based on the audited financial statements for the 4-month period ended 31 October 2005, the net tangible assets (“NTA”) and profit after taxation of Elitus are S$87,709 and S$75,934 (equivalent to RM196,468 and RM170,092 based on an exchange rate of 2.24) respectively.
        Dividend Policy
        Elitus does not have any specific dividend policy in place and has not issued any dividends in the past up to the date of this announcement. Going forward, dividends may be declared but the quantum of any dividend declared will be dependent on the profitability of Elitus and will be declared after taking into consideration Elitus’ future operational and working capital requirements.
    2.3 Brief information on the Vendors
        Toh Keng Ching and Heng Su-Lin, who are the Vendors and also directors and major shareholders of Elitus, each currently hold 160,000 Shares in Elitus representing 50% of the issued and paid-up capital of the Elitus.

        Their respective shareholdings in Elitus are as follows:-

    No of Shares held in Elitus
    Name
    Nationality
    Direct
    %
    Indirect
    %
    Toh Keng Ching
    Singaporean
    160,000
    50.0
    -
    -
    Heng Su-Lin
    Singaporean
    160,000
    50.0
    -
    -



    2.4. Basis of Arriving at the Purchase Consideration

    The purchase consideration of RM1.3 million was arrived at between YGL and the Vendors on a willing buyer-willing seller basis after taking into consideration the following factors:-

    i) the earnings potential in Elitus; and
    ii) the profit guarantee (as defined in Section 2.5 below)
        Source of funds

        The purchase consideration is to be financed by utilizing YGL’s listing proceeds from its recent listing on the MESDAQ Market of Bursa Malaysia Securities Berhad, of which RM4.130 million had been allocated for future business expansion and capital expenditure, including expansion into other countries.

    2.5 Other Salient Terms of the Agreement

    The following are the other salient terms of the Agreement:-
        Conditions of the Agreement
        (a) It is agreed and declared that the obligations of the Vendors to sell and YGL to acquire the Sale Shares shall be conditional upon and subject to the following (“the Conditions Precedent”):
            (i) the conduct and completion by YGL and/or its authorised representative(s), to its satisfaction at its sole and absolute discretion, of a legal, financial, industry and operational due diligence audit on the operations and position of Elitus; and

            (ii) all necessary Malaysian and Singaporean governmental and regulatory approvals being obtained;
            PROVIDED THAT to the extent permitted by law YGL shall be entitled at its discretion to waive any or all of the conditions set out above and in the event that additional or alternative conditions are imposed by Malaysian or Singaporean laws and regulations subject to such additional or alternative conditions.

        (b) YGL and Vendors agree that for the purposes of fulfilling the Conditions Precedent each of them shall provide, within fourteen (14) days of receiving a request, all information and documentation as may be requested by the other Party to make the necessary applications. Each Party undertakes with the other to render to the other Party such assistance as may be reasonably required in connection with applying for and fulfilling the Conditions Precedent.
        (c) In the event that the Conditions Precedent shall not have been obtained or fulfilled on or before the expiry of ninety (90) days from the date of this Agreement, or such other later date as may be mutually determined by YGL and Vendors (“the Approval Period”), the Vendors shall refund to YGL the Deposit (as defined hereinafter) (including the interest accrued thereon) and this Agreement shall terminate and be null and void and of no further effect whatsoever and neither YGL nor the Vendors shall have any claims against the other party for costs, damages, compensation or otherwise, save in respect of any antecedent breach of the terms of this Agreement.
        (d) This Agreement shall become unconditional on the date on which the last of the Conditions Precedent shall have been duly obtained or fulfilled in accordance with the provisions of this Agreement (“the Unconditional Date”) and thereafter the sale and purchase of the Sale Shares shall proceed to completion.
        Agreement for sale
        Subject to the terms and conditions of the Agreement, the Vendors shall sell and YGL shall purchase the Sale Shares with all rights, title and benefits attaching thereto from the date hereof and free from all claims, charges, liens, options and other encumbrances for the consideration as set out below.
        The total consideration payable by YGL to the Vendors for the Sale Shares shall be the purchase consideration of RM1,300,000 (“Purchase Consideration”) payable in cash in the following manner:
        (a) 30% of the Purchase Consideration shall be paid on the date of execution of this Agreement as deposit (“Deposit”); and

        (b) 70% of the Purchase Consideration shall be paid on the completion date (“Balance”).
        Vendors’ Undertaking and Profit Guarantee

        The Vendors hereby unconditionally and irrevocably undertake with and covenant to YGL that:-
        (a) YGL shall have financial control over Elitus upon the completion of this Agreement; and
        (b) the Vendors shall provide a profit guarantee to YGL such that the cumulative profit after tax (“PAT”) of Elitus shall in aggregate be not less than Ringgit Malaysia One Million (RM1,000,000.00) (“Guaranteed Profits”) cumulatively for the two (2) consecutive financial years ending 31 December 2006 and 31 December 2007 (“Guaranteed Duration”). In the event that the cumulative PAT of Elitus is less that the Guaranteed Profits, then the Vendors shall pay YGL, in one (1) lump sum cash payment and on demand, 60% of the difference and resulting shortfall between the actual PAT of Elitus for the Guaranteed Duration and the Guaranteed Profits in accordance.

    3. RATIONALE FOR THE PROPOSED ACQUISITION

        Elitus is currently supporting Tier 1 ERP solutions in Singapore. Pursuant to the Proposed Acquisition, YGL will be able to instantaneously leverage on Elitus’ presence in Singapore and Shanghai and its existing clientele base which includes multi-national and SGX listed companies.

        The Proposed Acquisition will increase YGL’s existing customer base and further expedite the roll-out of YGL’s consulting services and proprietary products into the ASEAN region and China.

        The Proposed Acquisition will also enable YGL to increase the contribution from the sales of its proprietary products through the appointment of Elitus as YGL’s representative in Singapore and Shanghai to provide support to the dealers and resellers of YGL’s proprietary products in Singapore and Shanghai.

        In addition, YGL will be able to enjoy synergies through the sharing of human resources with Elitus. This is expected to enhance the consulting division’s profit margins.

        The Directors of YGL, having considered all aspects of the Proposed Acquisition, are of the opinion that the Proposed Acquisition is in the best interests of the Company.


    4. EFFECTS OF THE PROPOSED ACQUISITION

    4.1 Share Capital

        There will be no effect on the issued and paid-up share capital of YGL arising from the Proposed Acquisition as it will be carried out entirely in cash.

    4.2 Substantial Shareholders' shareholdings
        There will be no effect on the shareholdings of the substantial shareholders of YGL arising from the Proposed Acquisition as it will be carried out entirely in cash.

    4.3 Earnings

        The Proposed Acquisition is not expected to have an impact on the earnings of YGL for the financial year ending 31 December 2005 as it is expected to be completed in the first quarter of 2006. The Proposed Acquisition is expected to contribute positively to and enhance the future earnings of YGL.
    4.4 NTA
        Based on the audited consolidated financial statements of YGL as at 31 December 2004, the proforma effects of the Proposed Acquisition on the NTA and NTA per share of YGL is set out in Table 1.


    5. SPECIFIC INVESTMENT RISK FACTORS

    5.1 Business Risks
        Elitus' revenues and operating results are exposed to general business risks as well as certain risks inherent in the broad sector of IT. These may include, amongst others, timing and market acceptances of products, inability to control unforeseen costs, the lack of human resources to meet increasing market demand, rapid technological change in the software and IT market, reliance on the performance of other industries and other business risks common to going-concerns.

        In order to mitigate this risk, it is intended that YGL and Elitus will constantly keep abreast with new technologies and market trends and channel these findings into the provision of its services in order to maintain and/or increase its competitiveness in the marketplace.

    5.2 Competition
        The IT market in which Elitus operates in has a large number of participants and is subject to rapid change and intense competition. However, the Directors believe that Elitus has a competitive advantage in the nature, quality and cost of its services. The Directors also believe that Elitus' relationships with its partners and existing clients and in-depth knowledge on their requirements will enable them to deliver products and services that cater to specific demands and budgets of their clients.

        Whilst Elitus will undertake reasonable measures to maintain its competitive advantage through the abovementioned strategies, there is no assurance that Elitus will be able to compete successfully against current and potential competitors, which could affect its business, operating results and financial conditions of Elitus and ultimately YGL.

    5.3 Acquisition Risk
        There can be no assurance that the anticipated benefits of the Proposed Acquisition will be realized, or that Elitus will be able to generate sufficient revenues in future to offset the associated acquisition costs incurred by YGL.

        In order to mitigate this, the Proposed Acquisition was entered into after taking into account the profit guarantees as described in Section 2.5 of this announcement.

    5.4 Political and Regulatory Risk
        The financial and business prospects of Elitus and the industry in which it operates may depend to some degree on the developments in the political, economic and regulatory factors in countries that it operates or plans to operate in. Any adverse developments of such factors may materially and adversely affect the financial prospects of Elitus and the industry in which it operates. The political and regulatory uncertainties include, amongst others, the risks of war, riots, changes in political leadership, expropriation, nationalism, re-negotiation or nullification of existing sales orders and contracts.

        As such, there is no guarantee that there will not be any changes in government policies or regulations that may be unfavourable to Elitus.

    5.5 Foreign Exchange Risk
        Elitus currently operates in Singapore and Shanghai. The revenue transacted in these markets will then likely be transacted in currencies of the respective countries. However, it should be noted that Elitus’ development partner is based overseas and as a result, the terms transacted with the development partner are transacted in foreign currencies. In view of this, Elitus has some minimal exposure to foreign exchange fluctuations and risks.

        It should be noted that there can be no assurance that any significant changes in exchange rate fluctuations and foreign exchange control regulations will not have an adverse impact on Elitus’ revenue and financial position. However, Elitus will continue to assess the risks whenever it ventures overseas and/or deal with foreign development partners.


    6. APPROVAL REQUIRED FOR THE PROPOSED ACQUISITION
        Save for the approval from Bank Negara Malaysia, the Proposed Acquisition is not subject to the approvals of the shareholders of YGL or of other governmental authorities and/or regulators as the Proposed Acquisition does not exceed the relevant percentage ratios prescribed in Chapter 4 of the MESDAQ Market Listing Requirements.

    7. POLICIES ON FOREIGN INVESTMENT, REPATRIATION OF PROFITS AND ENFORCEABILITY OF THE AGREEMENT

    (a) Policies on foreign investment and repatriation of profits

        There is no restriction or prohibition under Singapore laws relating to the foreign ownership of Elitus by YGL.

        Further, there is no regulatory exchange control restriction or sanction currently in effect in Singapore that would in the ordinary circumstances prevent the repatriation of funds by Elitus to any country from Singapore. There is also no restriction on the time frame for the repatriation of profits out of Singapore.
    (b) Enforceability of Agreement
        The Directors have been advised that the Agreement constitute a valid, legally binding and enforceable obligation of the shareholders of Elitus under Singapore's law.


    8. SECURITIES COMMISSION GUIDELINES
        The Proposed Acquisition has not departed from the Securities Commission’s Policies and Guidelines on Issue/Offer of Securities.


    9. DIRECTORS' AND SUBSTANTIAL SHAREHOLDERS' INTEREST
        None of the Directors and/or Substantial Shareholders and/or persons connected to them have any interest, directly or indirectly, in the Proposed Acquisition.


    10. SPONSOR

    K & N Kenanga Bhd is currently the sponsor for YGL.


    11. DOCUMENTS AVAILABLE FOR INSPECTION

    The Agreement relating to the Proposed Acquisition will be available for inspection at the registered office of YGL at No. 10, China Street, 10200 Penang during normal office hours from Mondays to Fridays (except for public holidays) for a period of one (1) month from the date of this announcement.


    This announcement is dated 16 December 2005.


    table 1.pdf

    Attachments

    table 1.pdf
    11 KB



    Announcement Info

    Company NameYGL CONVERGENCE BERHAD (MESDAQ Market) 
    Stock Name YGL    
    Date Announced16 Dec 2005  
    CategoryGeneral Announcement
    Reference NoCS-051215-66496


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