By Mak Yuen Teen

On April 20, I attended Datapulse Technology’s EGM. I had prepared comments and questions, but was not able to make or ask many of them, partly because (understandably) many other shareholders also had questions to ask, and partly because the company wanted to limit the duration of the EGM. Since I was not able to make all my comments and ask all my questions, I have posted them here.

I have also written to the company asking when the detailed EGM minutes will be posted on SGXNET. I had requested for them at the EGM and the company had agreed that these will be posted. Once the detailed minutes are available, I will offer some comments on the company’s responses, which I was unable to fully do at the EGM.

Resolution 1 – Low Beng Tin

  1. Have you or Datapulse been cleared by SGX for your “inadvertent omissions” (wrong disclosures) and also for the failure to disclose your prior relationship with RHT Law at OEL when RHT Law was first appointed as compliance adviser (for which SGX in the second notice of compliance has indicated a possible breach of the SFA)?
  2. You were also connected to RHT and Mr Tan Chong Huat of RHT at China Yongsheng (CYS) because when CYS moved to Catalist, RHT Capital was appointed as continuing sponsor and Mr Tan was also the contact person. This is similar to the situation at OEL which caused SGX to issue the notice of compliance. Did you disclose this relationship to SGX?
  3. Given your track record in terms of the performance, compliance and corporate governance of the companies you have been associated with – such as China Yongsheng, Cosmosteel and OEL – and your own series of wrong disclosures, can you explain to shareholders why you believe you will do a good job here in terms of ensuring proper compliance and good governance, and also helping protect and enhance shareholder value?
  4. I was not at the SIAS dialogue session, but according to a letter that minority shareholders have sent to the board that they have also sent to me, I was told that at that session, you said that DT shares are worth 60 cents. Can you confirm if you did say that? What basis did you have for that statement since share price is determined by the market and is currently about 34 cents?

Resolution 2 – Thomas Ng

Your background information said that you co-founded EV Capital Limited and One Investment & Consultancy and that under your leadership, your companies have successfully invested in numerous SGX-listed companies and foreign companies.

EV Capital, Singapore-incorporated company, has since been struck off (in 2016). One Investment & Consultancy is incorporated in British Virgins Islands.

  1. Can you share the circumstances for the striking off of EV Capital? Was the strike- off initiated by the company or the regulator? Can you provide more information on the reason for the strike-off please as shareholders would like to learn more about your track record?
  2. I understand that One Investment & Consultancy is still active. Is there any agreement for Datapulse to use the services of One Investment & Consultancy to invest in other companies under the diversification plan which includes diversification into the investment business?
  3. You have no prior experience as a director of a listed company and you have not yet attended any director training. However, you felt comfortable to approve the Wayco acquisition without any prior experience and director training. Why do you think you are suitable to be a director of Datapulse? What do you understand to be your duties as a director? What do you see as your role as an independent director of Datapulse, including with regards to minority shareholders’ interest?

[Isn’t it remarkable when a board with two out of three independent directors with no prior experience and training as directors can make an acquisition that could have such serious consequences for the company? It’s like a mechanic fixing your car before they have learnt how to do it.  Isn’t it even more remarkable that the same three independent directors are serving on the audit committee overseeing the internal controls review and the EY financial and tax due diligence to determine if the acquisition was done properly, whether the buyback should be triggered and whether to continue to invest in the hair care business to make Wayco sustainable? In my view, under such circumstances, the independent professionals should report directly to SGX without going through the audit committee, which is so clearly conflicted.]

Resolution 3 – Rainer Teo

I understand that you are a senior client adviser at Third Rock Capital and your background is in private banking and wealth management. Third Rock Capital is also involved in investment management.

  1. The circular says that you will be able to provide invaluable advice to the board in relation to, among other things, its proposed investment business and also if the company needs fund-raising. The board in its announcement on April 16 implies that you are responsible or contributed in some significant way to the performance of the funds at Third Rock Capital. Can you explain what is your role at Third Rock Capital? Do you actually manage the funds there, or do you advise clients on which fund to buy? How about in other companies you have worked for? Have you ever managed the funds? How about fund-raising? What is your experience in this area? Is it fund-raising from public markets and strategic investors?
  2. I assume that you have received clearance from Third Rock Capital to serve on Datapulse board, including clearing any conflict of interest requirements within Third Rock. Is there any agreement for Third Rock to be involved in the investment business of the company, or for any other investment companies that you may be related to (if any)?
  3. You have no prior experience as a director of a listed company but I see that you have now attended a 1-day SID course on director duties. I just wished you had attended this and maybe more before you joined the board and approved the Wayco acquisition. Why do you think you are suitable to be a director of Datapulse? What do you see as your duties and role as an independent director of Datapulse, including with regards to the interests of minority shareholders?

Resolution 4 – Wilson Teng

  1. You joined the company on March 19. Before that, you were working in HK. Since you were working in HK, the question would naturally arise as to whether you were recruited through a global search. How were you recruited? Was it through a search firm or personal contact? If personal contact, were you recommended by a current board member, the controlling shareholder Ms Ng Siew Hong, Wayco’s vendor Mr Ang Kong Meng? Before you joined the company, did you know any of these individuals?
  2. Your prior experience is in data centres and communication industries, and as far as I can see, you have not held a C-suite role, such as CEO or COO. How is your experience relevant to the business of Datapulse and to your role as a CEO of a listed company?
  3. You seem to have a lot of confidence in the diversification plan of Datapulse, especially in the hair care business, even though you only joined the company a month ago. As some of the minority shareholders have asked, would you be buying a lot of shares in Datapulse since you believe so strongly in the plan? They have suggested that you, the board and senior management take minimum salary and cash fees and take some shares (or options) that only vest if Datapulse share price hits 60 cents, which is the chairman’s projected share price. Would you be prepared to do this? That would go a long way to assuring minority shareholders that your interests are aligned with the company’s and their interest.

Resolution 9 – Proposed Business Diversification Plan

  1. The risk of the company becoming a cash company is not immediate. The board has up to 18 months to find a new business so there is no reason to rush and buy companies before doing a proper study. While it is a cash company, SGX has rules that protect shareholders. And if there is no new business to invest in, distributing the cash back to shareholders is the right thing to do.
  2. The board is proposing to diversify into the consumer business, especially the hair care business, and the investment business. The board already has a mandate to diversify into the property business. It is looking to diversify into the three areas.
  3. Let me first talk about the broad plan of diversification, particularly unrelated diversification which is what the board is proposing (Datapulse shares closed on April 27 at 30.5 cents, a further drop of 3 cents since the EGM, and well below its NAV and cash value).
  4. But it’s not just the research. Institutional investors and asset managers often pressure companies to split up or spin off businesses that are unrelated.
  5. Smart businessmen like Li Ka Shing recognized that the extensive diversification in his business empire was hurting the share price so about two years ago, he rationalized his empire by reducing unrelated diversification within his individual listed companies.
  6. The reason is simple. Shareholders can diversify themselves. If they want to invest in the consumer and property companies, they can buy shares in “pure play” consumer and property companies, or other type of companies. Shareholders do not need the company to diversify for them.
  7. Let me turn to the property business first. Perhaps when this was approved in 2013 by shareholders, it may make sense, but even then, I would question it. But today, so many listed companies are diversifying into property. It makes even less sense now in my view. Shareholders can easily invest in property development companies. There’s no reason to invest in Datapulse so that Datapulse can invest in property.
  8. Next, the investment business. Today, there are so many investment options that shareholders can avail themselves to. They can easily buy shares themselves, unit trusts, ETFs, foreign shares, etc. It’s endless. I don’t see why the company should do this for them.
  9. Finally, the hair care business. The CEO says he has a 100-day plan even though the Way companies have been going at the hair care business for decades and based on current market share, are only expected to achieve S$3.6 million revenue in Singapore and Malaysia by 2021. In fact, $3.6 million may be optimistic. As you know, this is an industry dominated by multinational giants.
  10. Wayco sales are mainly through Way Company. Way Company sales was S$3m for FY2016 and $2.73m on annualized basis for FY2017, i.e, a decline of 10%. The decline is across all distribution channels – salons, supermarkets & retail stores and overseas. So, sales are shrinking in a market that is growing.
  11. The EY strategic review says that Wayco by itself is not sustainable and states four major conditions need to be met for Wayco to be sustainable.
  12. Can the CEO or the board tell shareholders how much do they expect to spend to meet these four conditions? What sort of P/E or P/B would you expect to pay if you acquire Way Company and Way Trading?
  13. Can the board explain what are the conditions that can trigger the buyback of Wayco? So far, the board has been saying material adverse events or findings, but what constitute “material”? If for example, you find that most of the trademarks are of no value or the product labels have been wrong because they say the trademarks are owned by UK companies – which means that previous sales were based on consumers’ belief that they were UK brands – would that trigger the buyback? Can you give examples of situations that will trigger the buyback?
  14. If the buyback undertaking is triggered, would the company still be diversifying into hair care business?