Enviro-Hub Holdings has served a letter of demand to the owners of Pastel Gloves Sdn Bhd (PGSB) demanding the payment of RM23 million ($6.95 million), following the inability of the owners to meet the profit guarantee set out during the proposed acquisition in 2021.
Enviro-Hub first set out to acquire the remaining 75% stake in its associate company, PGSB, in 2021 for $46.8 million in a 50-50 cash and share transaction. With this, PGSB will become a fully-owned subsidiary of Enviro-Hub.
Under the terms of the deal, Enviro-Hub will pay a cash consideration of $23.4 million and issue 292.5 million new shares at a pre-determined price of 8 cents apiece, which amounts to a total value of $23.4 million.
In the acquisition announcement, the owners of PGSB, Law Siau Woei (LSW) and Choo Kuan Ping, also known as the vendors, had warranted that the company shall achieve an aggregate audited net profit after tax (NPAT) of not less than $23 million for the profit guarantee period.
Should the audited NPAT during the profit guarantee period turn out less than the profit guarantee, then the amount equivalent to the shortfall will be set-off against the consideration that the vendors are entitled to receive from Enviro-Hub, after the profit guarantee period being the balance 37.5% of the consideration, or $17,550,000.
As PGSB failed to meet the profit guarantee in its entirety during the profit guarantee period, Enviro-Hub has opted to take legal recourse.
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The vendors are expected to pay the full amount of RM23 million within seven days from the date of receipt of the letter of demand.
Shares in Enviro-Hub closed 0.1 cent lower or 4.348% down at 2.2 cents on June 10.
