Kianjoo- bonus issue canned?

Kianjoo's share price tumbled badly since May 23 when the news broke out that CanOne had filed court action to stop Kianjoo's proposed Bonus Issue & Warrant Rights Issue (go here). To recap, Can-One's wholly-owned subsidiary Can-One International Sdn Bhd, entered into a share sale agreement with Kian Joo Holdings Sdn Bhd to buy a 32.9% stake in Kianjoo for RM241.12mil or RM1.65 per share in April 2009 (go here). Subsequently, Kianjoo's Managing Director Datuk See Teow Chuan and 13 others filed a legal suit against Canone, claiming that the transaction was ‘’illegal’’.

CanOne is now taking court action to stop Kianjoo's proposed Bonus Issue & Warrant Rights Issue because it feared that its 'acquired' stake in Kianjoo may be diluted. I failed to see how the bonus shares would not be accrued to the acquirer otherwise all sorts of corporate exercise among listed companies would come to nought. It is the Warrant Rights Issue which may pose a problem because CanOne's share sale agreement with Kian Joo Holdings Sdn Bhd is to acquire the latter's stake in Kianjoo and one may argue that the new warrants to be issued is not part of the agreement. Alternatively, Kian Joo Holdings Sdn Bhd may sell off the warrant entitlement to parties friendly to the See family and thereby 'reduce' the stake to be acquired by CanOne. I have tabulated below the two scenarios:

1) Scenario A where CanOne controls the 32.9%-stake in Kianjoo as well as its entitlement for Warrant Rights Issue.
2) Scenario B where CanOne lost the entitlement for the Warrant Rights Issue.

Table: CanOne's Percentage Shareholding in Kianjoo

One more question to consider is whether the See family (whether reunited or still fragmented) can mount a fight to reclaim Kianjoo if CanOne can succeed in buying up the 32.9%-stake. The fact that the See family & CanOne is fighting over the proposed Bonus Issue & Warrant Rights Issue is a sign that there could be a shareholders' fight once CanOne takes control of the 32.9%-stake. The fight would be stacked against the See family & that's why they are maneuvering to trim down CanOne's eventual shareholding in Kianjoo.

Technically speaking, the correction over the past 3 days has actually brought the share price down to its uptrend line support of RM1.90-1.92. This coincides with the horizontal line at RM1.90.


Chart: Kianjoo's daily chart as at May 26, 2011_9.30am (Source: Quickcharts)

Based on attractive valuation & still positive technical set-up, Kianjoo remains a good stock for long-term investment. The CanOne's court action is a setback for those hoping to get some goodies in the near-term but for those with a longer investment time horizon, you may be rewarded by a potential shareholders' fight which should bring out the true value of this stock.