Hostile takeover bid of KNM Group by German billionaire is to acquire cheaply crown jewel Borsig

THE takeover attempt by German billionaire Andreas Heeschen on KNM Group Bhd should not be surprising due to the significant undervaluation of the company.

In fact, the action of the major shareholder of the Malaysian conglomerate has left the group currently embroiled in a high-stake boardroom battle as Heesche seeks to remove the existing board of directors (BOD) and management in favour of a new leadership team.

This, according to KNM Group’s CEO and managing director Ravindrasingham Balasingham, has sent shockwaves through the company and raised concerns among stakeholders about the future direction of the group.

Ravindrasingham explained that even when considering KNM Group’s book value, the company’s net tangible assets (NTA) amounted to 21 sen per share. This undervaluation is primarily attributed to its ownership of the Borsig Group, a renowned company with a market valuation exceeding €300 mil (RM1.5 bil).

“Notwithstanding this, FBM Hudson Italiana SpA, too, when it is turned around will also be of immense value. Unfortunately, we lack the resources necessary to fund such a turnaround under the current circumstances,” the former investment banker pointed out in a statement.

Ravindrasingham Balasingham (Pic credit: The Edge)

“As such, a disposal was necessitated at the best price given FBM Hudson Group’s current circumstances.” FBM Hudson manufactures heat exchangers and high-pressure equipment for the oil & gas (O&G) industry.

Underestimating KNM’s potential

With a keen interest in the Borsig Group and FBM Group, Ravindrasingham said Heeschen has made unsuccessful acquisition attempts in the past, “even as late as last year”.

“He has in-depth knowledge of the value and potential of Borsig and FBM Hudson which is not surprising as one of his suggested directors to replace KNM’s BOD is Flavio Porro who was an executive director of KNM Group and the CEO of FBM Hudson Group until December 2022,” revealed Ravindrasingham.

“It was Porro who had spearheaded and negotiated the failed attempts to sell the Borsig Group.”

In essence, the current situation has raised questions about Heeschen’s motivations and the timing of his attempt to acquire KNM Group, a company currently classified as Practice Note 17 (PN17) due to its financial distress.

Ravindrasingham believed this sudden interest should in fact strongly embolden the current shareholders of the massive potential value within KNM Group.

“As I have said in the past, KNM Group is in this position because of liquidity issues and an over geared position which the current board and management are resolving,” asserted Ravindrasingham.

“The most serious element is of course the level of debt which will be resolved once the debts of the group are pared down with the ample resources from the asset monetisation exercise that we are implementing.”

Discontent among creditors

To re-assure stakeholders, KNM Group has undergone numerous performance reviews by the majority of its creditors since December 2022.

In Ravindrasingham’s view, the fact that creditors continue to support the current leadership demonstrates confidence in the strategies being implemented by its current BOD and management under the leadership of Tunku Datuk Yaacob Khyra as the controlling shareholder and the group’s chairman.

“Understandably, the immediate worry about an abrupt attempt to takeover can and will create a disturbing disquiet among creditors who have been very supportive of us thus far,” he projected.

“Such unease could trigger serious actions from external creditors like the Asian Development Bank (CGIF) and TA/Danos, thus endangering the good working relationship that the current BOD and management has, and potentially the collapse of all progress made thus far.

“We have kept the creditors informed and have assured them that Tunku Yaacob is very serious about his controlling stake in KNM Group and if necessary, he will not hesitate to increase his stake.”

The CEO further questioned whether Heeschen’s attempted takeover of KNM Group might be a “cheaper” way for acquiring Borsig Group and FBM Group.

“Should this be the case, the shareholders and creditors of the KNM Group stand to lose all compared to our competitive monetisation process,” he added.

At the close of today’s market trading, KNM Group was up 0.5 sen or 4.35% to 12 sen with 14.8 million shares traded, thus valuing the company at RM486 mil. – Sept 8, 2023

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