Updated April 16, 2.45 pm
By Mak Yuen Teen
I refer to the Datapulse Technology board’s response dated April 16 to my various articles. I will reserve further questions and comments until the EGM. In the meantime, the following are my brief responses to the statements made by the Datapulse board.
Fair and balanced disclosures
I am glad that the company knows of the requirements in the SGX rules that announcements have to be “fair and balanced”. Perhaps the company should consider the following , just as illustrative examples. On December 15, Datapulse announced that the S$3.5 million consideration was based on:”… (a) the market value of the properties; (b) the “future earnings potential of the Target Company, inter alia, in view of certain intangible assets which it holds or owns, including trademarks, product formulations and distribution networks;” and (c) the “potential residual value of certain plant, machinery and equipment…which are almost fully depreciated”.
It was queried by SGX about the announcement and one of the queries asked the company to “provide details of the intangible assets and how they are instrumental to the future earnings potential of the Target Company” (emphasis is mine). Its response on December 28 said: “The intangible assets that the Target Company owns are mainly the product formulations or specifications for its products, which are unique or proprietary to the Target Company, and the trademarks set out in Annex B. All of the trademarks set out in Annex B are registered and relate to the Hair Care Products and Household Products manufactured by the Target Company, including trademarks to well-known brands such as “Good Look” (emphasis is mine).
It did not mention that 15 out of the 19 trademarks are not in use, and only did so in the March 26 circular to shareholders? Was just listing down the 19 trademarks without mentioning that only 4 were in use and therefore not currently contributing to the current earnings of Wayco, without further clarification and explanation, “fair and balanced”? The company also did not disclose if the 15 not in use were ever used. And yes, I am aware that trademarks which have expired can be renewed, but if trademarks have expired but have never been used, then their value would be in question.
Or how about this. The company’s December 14 response to my December 13 Business Times article said: “Mr Low (the Chairman) was introduced to Ms Ng by a third party as a possible candidate for independent Director and Chairman of the Board, and prior to his appointment to the board, was not acquainted with Ms Ng nor with the other New Independent Directors”(emphasis is mine). Mr Low was appointed to the Board on December 11. However, it was only in its January 30 announcement that it said that the board was introduced to the vendor by Ms Ng some two weeks before they were appointed. So was the original response about Mr Low not being acquainted to Ms Ng prior to his appointment (which must be taken to be December 11 as that was the date of his appointment) “fair and balanced”?
Or this. In the January 30 announcement, the board said that it is not true that it had not done any due diligence on the acquisition of Wayco because the directors had been furnished with certain information two weeks prior to their appointment and had sufficient time to review and consider before deciding to undertake the transaction. The company also mentioned the “rationale” for the acquisition – the risk of the company becoming a “cash company” and being delisted from the Singapore Exchange (SGX). This acquisition has been highly contentious since it was first announced on Dec 12. The fact that the company announced the acquisition one day after the current board was formed and completed the acquisition four days later had been repeatedly questioned in the media.
The company had on Dec 28 issued a response to queries from the SGX, including whether the company conducted proper due diligence prior to the acquisition. Why did the board not disclose this information all this time and when it responded to SGX’s queries on Dec 28? Why did it wait until January 30? Were the earlier announcements “fair and balanced”?
Were all the above “inadvertent omissions”?
Lian Beng transactions
On why I have cited the past transactions involving Lian Beng and Datapulse’s investment and subsequent disposal of its interest in Goldprime Realty, a Lian Beng subsidiary, there are two main reasons: (a) the current Datapulse chairman, Low Beng Tin, was and remains an independent director at Lian Beng, so may have participated in the discussion of the disposal of Datapulse’s stake to KSH (sale of a stake in a JV to another investor would usually require the approval of the other JV partner, i.e., Lian Beng’s board in this case); (b) Lian Beng bought a 10% stake in Datapulse at a 10% discount, and later sold that stake to Ng Cheow Chye, the former CEO and controlling shareholder, at a more than 50% premium. Recently, Mr Low was one of those who, together with Mr Ng and others, sold their stakes to Ms Ng Siew Hong at a more than 50 percent premium. My questions relate to whether those transactions were connected, whether there were arrangements in place that go back to Lian Beng’s investment in and subsequent exit from Datapulse, and whether such arrangements would compromise Mr Low’s independence. I believe these are relevant questions when assessing suitability/independence of a director (not to mention possible questions about compliance with securities laws).
Rainer Teo
On Rainer Teo, I am aware that Mr Teo has relevant experience in investment/fund management, and his background in wealth management. I am also aware that he has a masters in applied finance. My reference to Warren Buffett is that Mr Buffett is basically an exception when it comes to being able to consistently generate superior returns from his investments (and he has admitted he gets it wrong from time to time too). Unless Mr Teo chooses to ignore the overwhelming evidence, research consistently shows that active fund management strategies cannot beat market benchmarks over the long term. Further, there is no reason for Datapulse to diversify into the investment business when shareholders can buy shares themselves, or invest in unit trusts, exchange traded funds, etc., some at relatively low cost.
In its response, the company also said that I “should be aware that there are some publicly available information on various funds, and the sizes of their AUM (assets under management), including the fund(s) managed by Mr Rainer Teo‟s company, and while the returns on such fund(s) managed may be more a matter for Mr Rainer Teo and his principal(s) to know, Mr Rainer Teo must presumably not be doing too badly since he is still holding on to his job?”. It is well known that Mr Teo is with Third Rock Group, he joined it in 2017 and is now a senior client advisor. Is Datapulse claiming that Mr Teo is directly responsible for managing those funds and that the funds are performing well?
Trademarks and Wayco
On Wayco, the company spilled a lot of words about the trademarks but fails to answer this question: If Wayco and other Way companies actually own the trademarks, why do the product labels say that they are owned by UK companies owned by Ang Kong Meng and his sister, companies that have been dormant since their incorporation in the late 1980s and which have £100 in cash. Is there misrepresentation on the product labels and if so, should Datapulse be buying companies that do so, with the possible reputational and legal risks that come with that? Shareholders have every right to expect that their companies act ethically and legally.
Diversification plan
On the diversification plan, while I am not an expert in the hair care industry, neither are the board and management. Like me, their main experience with hair care is probably using hair care products, although I confess I have never used any “Good Look” or “Glorin” products, brands owned by the Way group of companies. I am not the one spending shareholders’ money diversifying into something I know little about. I have, however, tried to understand the fast moving consumer goods industry and am aware of the huge marketing costs incurred by multinationals to build brand loyalty. What is Datapulse’s competitive advantage and how is the $84 million or so in cash (minus whatever the board wants to spend on the property or investment business) going to help the company compete in this market? Shareholders have every right to question. I hope that at the EGM, the board does not respond to shareholders’ questions with answers like “you are not experts about the hair care industry”.
Proposed directors
Finally, on the proposed new directors, I have said that I expect that the new board, if appointed, will review its composition and make way for others who are more suitable if necessary. However, they certainly have much more experience as directors of listed companies and better track records (which I guess is not difficult given the track records or lack thereof of the current directors). But most importantly, they are not the ones who rushed out and bought Wayco with minimal due diligence, which the EY review has now said is not sustainable unless a number of significant conditions are met, which will clearly entail significant investment. They have also promised to do a proper study before they proceed with any diversification and they will seek shareholder approval if they do so. Therefore, the pressing issue is to replace the current directors. If the new directors are appointed and they do not honour their commitment, rest assured that I will be questioning them publicly too.
On why I have not commented on Ng Boon Yew and Intan Ng, readers may be interested in the following article which I posted on April 13: https://governanceforstakeholders.com/2018/04/13/response-to-datapulse-responds-to-mak-yuen-teen/
I would add that everything I have written is based on publicly available information. I did not comment on the “private matter” involving Intan Ng which the board has repeatedly mentioned, for the same reason that in the course of writing about Datapulse, others have shared with me what they claim to be private information about some of the current directors. I should not comment on “private matters” relating to Intan Ng that I do not know the full facts about, in the same way that I cannot comment on private matters that I do not know the full facts about for other directors.
Finally, I would add that all directors, both current and proposed ones, should be prepared to justify to shareholders why they should not be removed or why they should be appointed. Since the board feels that I am aligned with the proposed directors, they may claim that I am putting on a show if I ask the questions of the proposed directors and I have no wish to be playing into the hands of somebody else. But I am sure that there will be people who are aligned with the current board who will be asking questions of the proposed directors, so the board should not worry too much about that.
