By Khairie Hisyam
In the corporate jungle, ‘saviours’ rarely come to help ailing companies out of the goodness of their hearts, that much is a given. But how far should rewarding these investors go before we cross the proverbial line? Tiger mulls the question as it stalks a particular Silver Bird, which apparently is trying to force its shareholders into accept a restructuring deal.
Between prowling for career opportunities in the corporate jungle, volunteering for the public good and being inspired by the absurdities of our politics, an animal’s got to eat, and Tiger is a big eater, mind you.
Tiger isn’t picky, but it prefers hunting larger animals — being efficient with its energy and hunting time and all that. But sometimes Tiger craves a good bird or two to clean its magnificent teeth with, and on those days Tiger thinks of the breadmaker Silver Bird Group.
Jungle hawks would remember that in late July, Silver Bird informed Bursa that it found two parties willing to provide funding to the tune of RM16 million.
In exchange for the RM16 million, the two parties — Sunsci Holdings Sdn Bhd and Covenant Equity Consulting Sdn Bhd — would effectively get, among other things, redeemable preference shares (RPS) exchangeable with restructured Silver Bird shares with free detachable warrants on the basis of ten Silver Bird shares plus twenty free warrants for every RM1.00 outstanding RPS plus dividend.
Sunsci and Covenant Equity also get the option to acquire 40% of Silver Bird’s enlarged share capital over the next three years. If the company makes an audited profit before tax (PBT) of at least RM5 million, the investors get a 10% cut, plus an extra 5% if if the consolidated audited PBT is more than RM10 million — incentives and rewards for their investment and efforts to turn the company around.
Bearing in mind that Silver Bird has been struggling to make some dough for a while, this is great news for its shareholders because, in the company’s own words, “the funding is necessary for the Group to immediately start to implement its business turnaround plans”.
Okay, so these investors put in money and effort to turn things around and in exchange they get these monetary rewards. Fair enough.
Or so Tiger thought, until another Bursa filing earlier this month shed light on something the company apparently ‘forgot’ to mention about the deal.
On Oct 1, 2013 Silver Bird informed Bursa that if its shareholders do not approve the the RPS exchange with restructured Silver Bird shares plus free warrants, Sunsci and Covenant Equity can require the company to buy all the RPS at the cash price of RM2.50 per RPS.
Now this leaves a bitter taste in Tiger’s mouth.
With such a great deal on top of the agreed profit cuts, no wonder both investors were willing walk into the messy Silver Bird nest and try to turn the ship around. This means if the shareholders disapprove the RPS exchange, the investors stand to make 150% profit — a clean RM1.50 for every RM1.00 they invested.
Given they’re throwing in RM16 million, that amounts to RM24 million in net gain. With the losses Silver Bird has been making, that’s no small amount to fork out if the shareholders decide they don’t like the restructuring scheme.
What puzzles Tiger further is how the company neglected to mention this very crucial part of the whole deal in the first announcement dated July 25, 2013.
Why, just this week the company revealed that its auditors resigned because they were denied a fee increase, so bad was the financial situation of the company. So do the shareholders actually have a choice in this matter?
To Tiger, the RM24-million clause smacks of coercion, because it renders the shareholders’ consideration academic. If Tiger is faced with accepting or declining a RM16-million meal, knowing that Tiger is liable to pay RM24 million in saying ‘no’ will tip the scales very much in the ‘yes’ direction.
If the sambar deer pie is good, there’s no need to strong-arm Tiger into eating it, because trust Tiger, no invitation needed for Tiger to start digging in. This clause, effectively trapping the shareholders into saying yes, brings a stink to what was initially a sweet-smelling bunch of roses.
On that note, Tiger hates roses, but will sniff them if it lands Tiger a high-flying corporate job.
But then again, Silver Bird has had a colourful history or should Tiger say, ahem, ‘interesting’ past, perhaps the reason why it’s been struggling for so long.
Said history includes the time when the company sued its external auditor, alleging negligence and breach of duty, and also the time when the company sued its former executives for RM125 million for fraud. The company was also sued by a former executive director when he was suspended (with a couple of others) following an internal investigation into accounting irregularities.
There is also the time when the company comically declared that its financial statements in its 2011 annual report may not be correct. In the words of its independent, non-executive director Richard George Azlan Bin Abas:
“I, Richard George Azlan Bin Abas, being an independent non-executive director of Silver Bird Group Berhad … do solemnly and sincerely declare that, to the best of my knowledge and belief, the financial statements set out on pages 36 to 90 may be incorrect…”
Of course, what animal jungle can forget the May 2012 announcement when the company released its forensic report on its accounting irregularities. Note the word ‘forensic’ there?
That’s because according to the report, which identified 12 key areas of irregularities, “evidence of destroyed documents were uncovered, as were the evidence of computer file deletion and physical damage to the computer hard drive”.
The same report also pointed out that the company’s reported sales revenue were boosted by goods that did not exist, while it also bought goods that were never delivered.
Alas, Tiger can go on and on, but truth be told Tiger is tired of this particular bird, because the silver lining just won’t come however long Tiger waits. Time to find other meat to munch on as Tiger plots its next corporate move.
GRRRRR!
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