Top Glove hiding RM650M material information from shareholders?

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KUALA LUMPUR, Feb 19 – In April 2019, two individuals whom Malaysia’s Top Glove Corp has accused of a conspiracy to defraud the firm over its RM1.37 billion (S$455 million) buyout of Aspion in 2018 have filed counter-suits in Malaysia, charging that the world’s largest glove maker’s claim for loss and damages towards a “discount” is “hypothetical” and “fictitious”. Almost a year after the RM650 million counter-suits were filed, Top Glove have yet to announce it their shareholders as required by Bursa.

Under Chapter 9, Para 9.04 of the Main Market Listing Requirements (MMLR), Public Listed Companies are required to immediately disclose information on MATERIAL litigation and the development of such litigation. Bursa Malaysia may take actions against the Company and the Directors of the Company if there is evidence that the Company has failed to comply with the Listing Requirements.

Despite news of the counter-suits in Singapore, the company have remained silent on the matter; it is as if a RM650 million counter-suit will not have any affect on the company financials or their share price.

A source told NMT that the countersuits were brought up in Top Glove’s AGM on 8 January 2020 and that the company has provided the explanation for not announcing the said legal suit to Bursa Malaysia. As at the AGM date, no further queries from Bursa to the Company.

NMT has queried the Securities Commission which took 1 month to acknowledge and inform that the matter is currently being reviewed and that they have referred the matter to Bursa for assessment.

Background to the lawsuit

In June 2017, Adventa Capital engaged Credit Suisse (Singapore) to run an auction process to identify buyers for Aspion Sdn Bhd. Top Glove was one of several bidders who were given access for due diligence.

In November 2017, Adventa Capital selected Top Glove as the winning bidder. Top Glove was selected because their bid was the highest which comprised of 2 components; upfront payment of RM1.37 Billion and a 3-year earn-out based on a 16.9 times multiple of the profit from a new range of products called Finessis in the years 2018, 2019 and 2020. The earn-out was estimated to be worth between RM330 Million to RM650 Million, combined with the upfront payment making the total deal value potentially greater than RM2 Billion.

The parties signed the deal in January 2018, and Top Glove completed the acquisition of Aspion from Adventa Capital in April 2018.

In June 2018 after completing the acquisition, Top Glove initiated lawsuits in Malaysia against 2 of the directors of Adventa Capital, Low Chin Guan and Wong Chin Toh, alleging that they made fraudulent misrepresentations causing Top Glove to enter into the deal and allegedly overpay more than RM700 Million. At the same time, Top Glove initiated arbitration proceedings against Adventa Capital in Singapore Internation Arbitration Centre (SIAC) with similar allegations.

Top Glove has also fired Low from his position as Aspion’s CEO and removed him as a Director on the Board of Director of Top Glove. This despite Top Glove requiring in the deal, that Low commits to stay in place as CEO for 2 years after completion of the Aspion acquisition.

In short, barely 3 months after acquiring Aspion, Top Glove sued the sellers and alleged them of fraud that mysteriously went undetected despite having nearly 6 months to perform due diligence AND despite Top Glove being an expert in the rubber glove sector (they are the largest player in the world).

More often than not, in cases involving alleged fraud, the preferred remedy is to rescind (undo) the deal, however with Top Glove, they affirmed the deal (to keep Aspion) but is trying to get back almost 50% of the price it paid to purchase Aspion. (RM700 Million against purchase upfront payment of RM1.37 Billion)

Aspion’s former directors counter-sued Top Glove for a “pre-planned buyer’s remorse”

In April 2019, Low and Wong, filed counter-suits against Top Glove with counter-claims of RM650 Million, including suits against its Chairman, Lim Wee Chai and Executive Director Lim Cheong Guan, the 2 key executives responsible for the Aspion acquisition.

Top Glove’s conduct is suggestive not only of “buyer’s remorse” (a phrase used by The Edge in January 2019) but it is highly plausible it is a “pre-planned buyer’s remorse” i.e. Top Glove planned all along to win the bid for Aspion against other credible buyers (since the sale of Aspion was by way of an auction process) by bidding the highest price but in truth they intended from the outset to reclaim a huge chunk of this price through a lawsuit soon after closing the deal. Could the bidding price be deceptive and the vendors got cheated by the illusion of high price, only to be sued after closing the deal?

Top Glove failed to obtain Mareva injuctions against Low, Wong and Adventa on 4 occasions

As part of the lawsuits, Top Glove also sought Mareva injuctions (a court order to freeze accounts and assets) against Low, Wong and Adventa Capital.

Between the end of June 2018 and November 2018, Top Glove’s appilication for Mareva injunction against Low and Wong in Malaysia were dismissed by the High Court on 3 separate occasions. The judge stated in her judgment that there was “no good arguable case” for the alleged misrepresentations and also expressed issues with the computation of damages.

In computing its damages, Top Glove presented an ever-changing case in each of its Mareva applications. The computed damages changed each time, and it also decreased each time, from originally around RM700 Million, to RM600 Million, then to RM633 Million, and most recently to a range of RM220 Million to RM460 Million.

On its failure to obtain a Mareva, Top Glove informed the court that it will elevate the case to the Court of Appeal. As a result, High Court automatically granted Erinford Order, which is interim version of a Mareva, but the freezing order was for RM220 Million instead of Top Glove’s original RM700 Million figure.

Similarly, Top Glove also sought Mareva injuction in Singapore. The case was heard in mid-May 2019 and on 11 June 2019, the Singapore High Court dismissed Top Glove’s application. This would be the 4th failed Mareva attempt by Top Glove.

While the Mareva injunction is interlocutory in nature, i.e. it is not the entirety of the case being brought by Top Glove, it is still noteworthy that Top Glove has failed on 4 occasions to obtain the Mareva. And this despite Top Glove shifting its case, using different basis and allegations on each of the 4 occasions. While they have the legal right to amend their case as they go along, does it not suggest that they have a weak case?

And what if they lost the case? Is that not RM650 Million question?

“Failure to make full disclosure of material matters”

Whilst it was reported that they had obtained injuction, Top Glove had its injunction order against Adventa set aside by the High Court for “failure to make full disclosure of material matters.”

Given their records for ‘failing to make full disclosure’ as well as being the expert and also the largest glove maker in the world, was it really a failure to disclose the counter-suits? Or was it intentionally done; which is to the detriment of minority shareholders?

One must ask why are they still hiding or rather not making full disclosure about the countersuits to the public?

More to come on..