Mainboard-listed Q&M Dental says it intends to make a mandatory unconditional cash offer of 3.21 cents for the shares it does not already own in its subsidiary, Catalist-listed Aoxin Q&M.
This comes after Q&M increased its stake in the latter to 50.53% from 33.33%. The offer is made under Rule 14.1 of the Singapore Code on Take-overs and Mergers, where companies or persons have to make mandatory offers for shares in a company when they own "not less than 30% but not more than 50%" of the voting rights.
On April 30, Q&M acquired 87.97 million shares in Aoxin Q&M from Health Field Enterprises Limited (HFEL) under the share security agreement dated Oct 12, 2016. The acquisition was completed at the volume weighted average price (VWAP) of 3.21 cents per share for trades done on April 22. This forms the partial settlement of the profit guarantee amount owed by Aoxin Q&M's executive director and group CEO Dr Shao Yongxin. The share acquisition was made as HFEL and Shao did not fulfil their obligations under the profit guarantee provided by Shao in a circular in October 2016. On April 18, Q&M announced that it issued a letter of demand to Shao for sums owed under a profit guarantee agreement.
As at Dec 31, 2024, Shao is said to owe Q&M a total of RMB72,274,588 (or $13.0 million) arising from shortfalls under the profit guarantee.
"Despite numerous reminders and follow-ups with Dr. Shao, the shortfall amount remains outstanding," said Q&M in its April 18 announcement.
"Despite multiple and repeated reminders from the company, Dr. Shao and HFEL have failed to fulfil their obligations under the master agreement. Dr. Shao and HFEL have also failed to propose a reasonable alternative proposal to the company. Under the share security arrangement, the company is to transfer such number of Aoxin shares held by HFEL to an independent third-party," Q&M adds in its April 30 release.
Q&M says it has also attempted to look for potential third-party buyers for the shares at the prevailing market price, but no suitable buyers were found. As such, the group decided to acquire the shares in Aoxin Q&M from HFEL.
Together with the 87.97 million shares acquired in Aoxin Q&M, Q&M can acquire a total of 341 million shares in Aoxin Q&M, representing 66.67% of the total shares in Aoxin Q&M.
Based on Aoxin Q&M's financial statements for the FY2024 ended Dec 31, 2024, the company's net tangible asset (NTA) value, excluding non-controlling interests, was approximately $25.6 million. The NTA attributable to the 341 million shares based on Aoxin Q&M's FY2024 results is $17.1 million. The market value of the maximum acquired shares, based on the VWAP of 3.21 cents per Aoxin Q&M share, is around $10.9 million. The net loss attributable to the maximum acquired shares as at Dec 31, 2024, is $217,905.
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According to Q&M, the offer price is final and the offer is unconditional in all aspects. The offer will last 28 days after the date on which the offer document is posted. The document will be subsequently issued by Q&M . The offer will not be extended beyond 5.30pm on that date.
Should the offer be fully accepted, Q&M will pay about $8.1 million for the offer shares.
While the offer was made under Rule 14.1 of the Singapore Code on Take-overs and Mergers, Q&M believes Aoxin Q&M's businesses are complementary to its business. The acquisition of the latter's shares also aligns with its strategy to expand its assets and earnings base. Furthermore, the acquisition presents an opportunity to acquire statutory control of Aoxin Q&M and create new growth opportunities in China by integrating Aoxin Q&M into the group.
Shares in Aoxin Q&M last traded at 3 cents before its trading halt on the morning of April 28. Shares in Q&M closed flat at 29 cents on April 30.
