Lagenda realignment triggers RM543 mil reverse takeover of Epicon

PETALING JAYA (July 15): Lagenda Properties Bhd has proposed to inject its construction business into Epicon Bhd via the disposal of 60% stakes in two wholly owned construction subsidiaries for RM543.16 million, in a related party transaction that will result in Epicon becoming a 62.79%-owned subsidiary of Lagenda upon completion.

In a Bursa Malaysia filing yesterday, Lagenda said although its direct interests in Rantau Urusan (M) Sdn Bhd (RUSB) and LPB Construction Sdn Bhd (LPBC) will be reduced to 40%, the company said it expects to continue consolidating the two companies' financial results because Epicon will become its subsidiary, giving it an effective 77.68% equity interest in the businesses.

The proposed transaction comprises the disposal of 60% of RUSB for RM280.15 million and 60% of LPBC for RM263.01 million, for a total consideration of RM543.16 million.

The purchase consideration will be satisfied through a combination of the assumption of RM125.82 million in advances owing by the Lagenda group to the two companies, together with the issuance of 1.86 billion new Epicon shares valued at RM241.43 million and 1.35 billion redeemable convertible preference shares (RCPS) worth RM175.91 million, with both securities issued at 13 sen apiece.

Under the share sale agreement, Lagenda has also granted Epicon an irrevocable call option to acquire the remaining 40% stakes in RUSB and LPBC for up to RM362.10 million. The option is exercisable within 30 months after the profit guarantee determination date and is subject to adjustment under the terms of the agreement if the guaranteed earnings are not achieved.

As part of the transaction, Lagenda has guaranteed that the two companies will record a combined audited profit after tax of at least RM110 million for the financial year ending Dec 31, 2027, and RM128 million for FY2028, representing an aggregate RM238 million over the two-year guaranteed period.

To secure the profit guarantee, 1.10 billion consideration shares will be pledged to a stakeholder. If the guaranteed earnings are not achieved, any shortfall will be settled in accordance with the mechanisms set out in the share sale agreement, including cash settlement and, where applicable, the disposal of pledged shares.

The transaction values the two companies at up to RM905.26 million, assuming the call option is fully exercised. According to Lagenda, the consideration was negotiated on a willing-buyer, willing-seller basis after taking into account an independent valuation by BDO Capital Consultants Sdn Bhd, which valued the businesses at between RM860.23 million and RM948.52 million after adjustments for permitted dividends. The implied valuation multiple of 7.61 times earnings, according to the circular, falls within comparable market transaction ranges.

Lagenda said the exercise is intended to streamline the group's operations by allowing it to focus on property development while consolidating its construction businesses under Epicon. The company said the enlarged construction platform is expected to enhance operational efficiencies and create a larger listed construction entity, while allowing Lagenda to continue participating in the businesses' future growth through its controlling stake in Epicon.

As the proposed transaction will result in Lagenda acquiring a controlling stake in Epicon, the company said it intends to seek the Securities Commission Malaysia's approval for an exemption from the mandatory takeover obligation under the Malaysian Code on Take-Overs and Mergers. The proposed exemption is subject to approval from Epicon's non-interested shareholders.

The proposals carry a highest percentage ratio of 77.68% under Bursa Malaysia's Listing Requirements and are subject to approvals from shareholders of both Lagenda and Epicon, the Securities Commission Malaysia and other relevant authorities. The company expects the proposed disposals to be completed by the first quarter of 2027, while the call option will only become exercisable after the profit guarantee determination date.

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