Stockmarket.com.my

Some of Titan Chemicals Corp Bhd’s shareholders may have already cashed out early on a windfall, even as the group’s controlling shareholders Permodalan Nasional Bhd (PNB) and their Taiwanese founding partner, the Chao family, work to finalise a massive takeover bid from South Korea’s Honam Petrochemical Corp.

They include Titan Chem’s long-time director Datuk Mohamed Ariffin Aton, who had sold 300,000 shares in the open market over the past two weeks after the stock surged to a record on Honam’s offer. Mohamed Ariffin joined Titan Chem’s board of directors in 1999, six years before the company went public in 2005.

On July 16, Honam announced it will acquire a 72.3% stake in Titan Chem from PNB and Chao for RM2.94bil cash, or at RM2.35 a share. The bid price had a 27% premium above Titan Chem’s market price of RM1.85, the last traded price before the counter was suspended to make way for the takeover announcement.

Incidently, institutional investors paid RM1.85 a a share in Titan Chem when the company was floated on the local bourse in five years ago.

The counter jumped after trade resumed, but has yet to reach Honam’s offer price two weeks after.

It closed last Friday at RM2.21 – the price where a chunk of Mohamed Ariffin’s shares were sold, recent filings to Bursa Malaysia showed.

At that price Titan Chem’s market capitalisation stood at RM3.87bil, which is below the RM4bil Honam will have to pay for the entire stake in one of South East Asia’s biggest polyolefins producers.

Honam will have to make a general offer to buy out the remaining minority shareholders after it completed the acquisition from PNB and Chao.

This would probably happen before the end of the year. The takeover offer is conditional subject to approvals from authorities in several countries.

Analysts believed Honam had made it clear it wanted total control of Titan Chem, which was why the offer was priced at a huge premium to market value.

The group certainly has the muscle to do it. Cash-rich Honam is a subsidiary of Lotte Group, South Korea’s fifth largest business group.

The takeover, the largest by a Korean company so far this year, will make HonaAsia’s second-largest petrochemical producer after Taiwan’s Formosa Petrochemicals.

Honam will add to Titan Chem’s capacity to produce over 2.4 million tonnes a year (MTA) of olefins, polyolefins and other associated products if the acquisition goes through.

Titan Chem started as a joint venture between PNB and Datuk T.T. Chao, through The Chao Group International, and build its first plant in Malaysia at a cost of RM300mil in 1989.

It now has ten integrated process facilities in Pasir Gudang and Tanjung Langsat in Johor, as well as three polyethylene plants in Indonesia following an acquisition in 2006.

Today, Titan Chem produces a comprehensive portfolio of polyethylene and polypropylene. Local sales accounted for about 40% of its annual revenue.

These polyolefins are used in a variety of consumer and industrial applications, including packaging film, trash bags, automotive parts, plastic bottles and caps, and compounds for wire and cable insulation.

A poll of three analysts tracked by Bloomberg predicted Titan Chem will make a net profit of RM530mil on revenue of RM5.8bil in 2010.

Titan Chem’s earnings had been erratic in the past years, largely due to the unprecedented volatility in the crude oil market.

The company was the biggest IPO in 2005 and managed to raise RM800mil from its share sale that year, less than what it had originally sought.

According to reports at the time, Titan Chem’s IPO was priced at the bottom end of a indicative range of between RM1.85 and RM2.45.

It is a big, well-managed business, but had struggled to impress the investing community since its listing because of perceived rich valuations and concerns about competition from bigger multinational producers.

Months after it was listed, the company announced it will miss its own profit forecast due to unexpected rise in crude oil prices.

Titan Chem made a net profit of RM769mil in the financial year ended Dec 31, 2006 (FY06), but this was halved to RM352mil the next year.

It sank into the red in FY08, chalking RM260mil in losses as crude oil hit a record US$145 a barrel in July that year.

The group bounced back in FY09 to report a net profit of RM524mil.

At the price of RM4bil, Honam’s offer is about 8 times Titan’s recent annual earnings.