Global Sources sends open letter to Sage shareholders

A brief update, Global Sources held a press conference yesterday in Hong Kong in which it issued an open letter to Sage International's (formerly Info Communication) shareholders. It is a 4-page letter, but in short, Global Sources aims to drive a few key points home to Sage's shareholders:

• Global Sources is willing to buy Sage's exhibition business for HK$6 million - double the amount Sage's board agreed to sell to Eddie Leung who is a connected party (i.e. he founded those exhibitions).

• Eddie Leung sold his stake in Info Communication in 2007 for HK$53 million and he is now buying essentially the same business back for HK$3 million.

• Global Sources expressed an interest in buying Sage's exhibition assets as early as May 2010 and Global Sources continues to be interested in the acquisition at the higher price.

• The Global Sources' letter also notes that Chan Chao International Company Limited ceased to be listed as an Infosky subsidiary as of 31 March 2010 and Global Sources asks why this is the case.

Separately, Global Sources also capitalized on Alibaba.com's troubles by issuing a letter from chairman and co-CEO Merle Hinrichs highlighting the importance of having "adequate systems, processes, and internal controls in place" to protect buyers. The letter went on to state:

"We verify and validate suppliers by personal visits as well as independent third party checks on business registration, credit status and supplier capability. We also provide a star ranking system which reflects the extent of verification we complete for our suppliers. To further safe-guard buyers and minimize fraudulent activity, we have a clear separation of the sales team and supplier review processes, reputable third party services to confirm and validate each supplier, and clear policies to address complaints received about suppliers."

It has been a busy week for Global Sources...

Alibaba.com CEO and COO resign today

Alibaba.com CEO David Wei and COO Elvis Lee resigned today after the Hong Kong-listed, Hangzhou-based company completed an internal investigation into the online fraud of its buyers.

The key points:

- David Wei will be replaced by Taobao CEO Jonathan Lu.

- Board-level internal investigation was completed in January by INED Savio Kwan

- Determined Wei and Lee did not do enough to react to a "noticeably increase in fraud claims by global buyers"

- Ali's management determined that about 100 sales staff (out of 5,000) were either intentionally or negligently allowing fraudsters to set-up online storefronts on Alibaba.com

- This involves some 1,219 China Gold Suppliers who signed up in 2009 and 1,107 who signed up in 2010.

- Wei, Lee and other senior management were cleared of any involvement in the fraudulent activities

- Jack Ma was quoted in the press release "David and Elvis are doing the honourable thing to accept full responsibility for this."

This is the most significant shake-up at Alibaba.com in its history as a listed company. There is certainly more to come over the next few days and weeks.

Global Sources made offer for InfoCom trade shows

In a 54-page circular submitted to the Hong Kong Stock Exchange on 14th February, Sage International revealed that Global Sources offered them HK$6 million for their exhibition assets. (See pages 8, 9 and 24.) Sage claims that the offer was received on 7th February 2011 - after Global Sources first expressed an interest in Sage's exhibition portfolio as early as May 2010.

Sage (formerly Info Communication) is instead opting to sell its exhibition business back to the founder of those exhibitions, Eddie Leung, for just HK$3 million. Sage offers a number of reasons for selling to Leung instead of taking Global Sources' higher offer all of which boil down to: it would be too much trouble, effort and expense to take the higher offer.

Infosky (Sage's subsidiary which operates its exhibition business) posted revenues of HK$47.8 million and a net profit of HK$2.4 million for the year-ended 31 March 2010.

Leung has done pretty nicely on this transactions as he seems to have sold his stake in InfoComm in October 2007 for HK$55.2 million. (At least we think that is what happened. You would have to be a forensic accountant to wade through all of these filings.)

The management of Sage International best hope well-known, Hong Kong-based shareholder activist David Webb doesn't decide to have a look at these string of transactions - in which minority shareholders have not fared so well.

Some of our other posts on Info Communication's woes can be found here.

Suntec International close to signing two Malaysian venues

News this week: Suntec International, Suntec Singapore’s sales and marketing representative service launched last year, is reportedly negotiating with the Malaysian government to provide its MICE expertise to two unnamed venues in Malaysia.

According to TTG Asia, Suntec International is in the final stages of discussion covering two consultancy contracts. The TTG Asia article quoted, Suntec International director of international sales and marketing Chu Pui Wia, “Asia's MICE industry is on the cusp of a regional transformation and Suntec International is well positioned to capitalise on the task at hand. We are also set to tap the opportunities in the emergent China markets as we are poised to implement more strategic initiatives to further expand our footprint.”

Last year, Suntec International signed sales and marketing representation contracts with the Vancouver Convention Centre and one with the Adelaide Convention Centre in January this year.

Singex’s new convention wing to open in 2012

News this week: Singapore Expo (Singex) has provided details on the announced expansion plan of its facilities. Named MAX Atria, the new convention wing will feature 23 meeting rooms and pre-function areas, providing an additional 8,000 m² to Singex.

Construction of MAX Atria is expected to be completed by early 2012 with costs estimated between US$43 and US$47 million – that figure is inclusive of upgrades to other parts of the venue initiated last year.

Chairman of Singex, Bob Tan was quoted in an article, “More concurrent activities are now held alongside the main convention or exhibition, and this has spurred demand for more flexible and focused venue settings that make meetings and events meaningful. Max Atria will be well-suited to host not just conferences, corporate meetings and their companion break-out sessions, but also a multitude of events, such as plenary sessions, product launches, award ceremonies as well as banquets and receptions.”

Bean Media to launch new magazines

News this week: Sydney-based publishing company, Bean Media Group, has announced plans to launch new business magazines this year. The new magazines are: CEO Magazine and Australia’s Best Mining.

Australia’s Best Mining will become a separate magazine spun out of the existing Bean Media title, Australia’s Best Building, Construction and Mining. Australia’s Best Building and Construction will continue to publish focused on the construction industry, while Australia’s Best Mining will become a separate title facing competitors such as Mining Media’s The ASIA Miner.

The second new title, CEO Magazine, will be published bi-monthly and target Australian business leaders. It will include business news and commentary as well as an interview section focusing on a different leading Australian business professional in each edition.

Kenfair: still stuck in the mines

After more than 18 months of suspension, shares of Hong Kong-listed Sino Resources Group quietly began trading again the day before the start of the Chinese New Year holiday.

The company was formerly known as Kenfair and it was formerly focused on B2B exhibitions.

Since 2007, the company has been tangled up in a mess. At that time, Kenfair's owners decided it would be a good use of company funds to buy a coal mine in China. Unsurprisingly, it all went wrong.

Since then, Kenfair's management and owners have been distracted by problem after problem - all stemming from the failed coal mine acquisition. On Wednesday, Kenfair used the time-honoured approach of slipping some bad news into the market just before a holiday. Kenfair (we will stick to referring to the company as Kenfair instead of Sino Resources) released a 23-page announcement to the Hong Kong Stock Exchange. Buried amongst the legal language, there were plenty of low-lights:

• Kenfair is still pursuing through the courts Mr. Richael (no, that is not a typo) Hung over the cancellation of the coal mine sales agreement and trying to force Mr. Hung to return the shares he now holds in Sino Resources which stands at 25% of outstanding shares.

• Their day in court is not expected until mid-2012.

• The police in Heilongjiang province now maintain that the company seal used by Mr. Hung on the coal mine sales agreement was forged. (It seems fairly predictable that a Hong Kong-based exhibition company with no coal mining experience would get itself into trouble trying to buy a mine in the Chinese hinterland.)

• There is a byzantine collection of legal actions by multiple parties in all related in some manner to the coal mine fiasco.
  

• In spite of itself, Kenfair's Exhibition Group recorded revenues of HK$87.4 million in the year ended 31 March 2010. Management is predicting revenues of approximately HK$80 million for the year ended 31 March 2011.

• Net profit in the seven month period of 1 April 2010 to 31 October was HK$15 million - up from HK$9.7 million recorded in the same period in 2009. (This would be a great little exhibition business if someone at Sino Resources was actually interested in that business.)
  

• The company will continue it organise its three key exhibitions: Mega Show Part 1 and Part 2 in Hong Kong and the Asia Expo in London.

• Kenfair's role in all other exhibitions, including the Ningbo International Sourcing Expo have been terminated - and that is probably a good thing. The lion's share of the company's revenues and profits have always come through the Mega Shows.

• Incredibly, Kenfair is no longer the actual organiser of these three exhibitions. The exhibitions are organised by a former subsidiary called Group Idea Limited. Kenfair disposed of Group Idea (for an unspecified reason and amount) in 2009. Kenfair is the manager of these three exhibitions under the terms of an agreement with the Group Idea. That agreement expires in 2012. Kenfair collects all revenues generated by these exhibitions and then pays Group Idea 20% of total revenues. Why a company would put itself in such a risky position is unclear, but it is likely that Group Idea is controlled by one of the owners of Kenfair. Otherwise, why sell off your core asset to someone who could walk away with it by simply not renewing the agreement in 2012?

• Kenfair now focuses on "sales and marketing as well as show management functions of exhibitions, instead of operational work." They claim to have just 19 permanent staff now of which only 7 are employed by the exhibition business. This is quite remarkable considering the company generates HK$80 million in exhibition revenues.
  

• The Board has "no intention to dispose of the exhibition business within 12 months after the resumption of trading (2 February 2011)." Good to know, but taking into account the fact that Sino Resources is now stacked with mining managers and that in November last year the company invested in a China-based natural gas drilling firm, I would say that their interest in B2B exhibitions is... limited.

• The natural gas acquisition is being financed by a placement of nearly 223 million shares at HK$0.35 - about a 20% discount to where the shares closed in June 2009 before the suspension. That should please Kenfair's long-suffering shareholders!
  

• Sino Resources unaudited liabilities are HK$325 million, but if the disputed liabilities are excluded, then operational liabilities would be just HK$62 million. So Mr. Richael Hung has currently stuck them for some HK$263 million (US$34 million). Well, good luck with that new natural gas venture, gentlemen. I guess you are hoping second time lucky.

Note: US$1 = HK$7.78

M&A activity in Asian B2B media picks-up in 2010

BSG published its semi-annual Tracker Report on M&A activity in Asian B2B media earlier this week. In 2010, M&A activity in that sector recovered in terms of the number of deals - rebounding from a low of just 10 deals in 2009 to 20 last year.

Despite the fact that the number of transactions doubled in 2010 compared with 2009, the total value of those transactions dropped 7% to US$137 million last year. That resulted in an average deal value of just US$6.8 million in 2010 - the lowest average since 2002.

China-based transactions accounted for 40% of the deals in 2010, while despite its rapidly expanding economy, just one deal was completed in India in 2010. The lack of transactions in India could stem from a number of factors: regulatory and legal challenges, a lack of quality targets and Indian sellers expecting unrealistic valuations.

The most active acquiring company since 2002 (when BSG began tracking M&A activity) continues to be UBM. The company completed five deals in Asia last year and we expect that trend to continue in 2011. Two other companies to watch this year are Alibaba.com and Reed. Alibaba is sitting on a mountain of cash (approximately US$1.3 billion) and has committed to investing US$100 million in the coming years to build its e-commerce infrastructure. On the other hand, Reed Exhibitions which had not closed a transaction in Asia since 2007, suddenly announced two deals in December. Together, UBM Asia, Reed Exhibitions and Alibaba can be expected to generate considerable M&A activity in 2011.

In 2011, BSG anticipates the trend of an increasing number of deals at lower average deal values will continue. We are forecasting 2011 to result in transactions totaling between US$170 million and US$200 million - of course one or two blockbuster transactions from a giant like Alibaba could rapidly change that.