KVB Kunlun on the Verge of a Takeover as Share Price Volatility Remains Elevated

KVB Kunlun, the HK-based broker has again seen its shares halted amidst price gyrations resulting from a suspected inside information leak earlier this month. For background to the story, see Forex Magnates' previous coverage here.

On November 10th, trading in KVB Kunlun shares on HKEx was halted due to unprecedented buying volume that helped the share price spike by over 200%. Following a company statement and revelations that takeover negotiations were ongoing, trading resumed a day later only to be halted again on November 19th.

On average, 10,000 – 50,000 KVB shares are traded on any given day. In contrast, during the entire month of October, 1,710,000 shares were traded. However, on November 11th only, KVB Kunlun trading volume on HKEx reached 3,685,000 shares and then rose 10-fold to 32,730,000 on November 12th.

In a company statement, KVB acknowledged, “On 19th of November, 2014, the Letter of Intent (LOI) was entered into between the Controlling Shareholder, Mr. Li and the Potential Purchaser which is an independent third party." Adding, “The Potential Purchaser will acquire such number of shares that represents more than 30% of the voting rights of the Company, giving rise to an obligation on the part of the Potential Purchaser and parties acting in concert with it to make a mandatory unconditional general offer for all the shares."

Trading resumed this morning with shares trading close to the HK$ 1.00 mark, approximately midway between the highs seen on November 12th (HK$ 1.30) and the price seen before takeover talk emerged (HK$ 0.40).

Negotiations between the current majority stockholder, Mr. Li Zhi Da and the potential buyer are ongoing with KVB reiterating that “terms of the 'possible transaction' are subject to further negotiations,” with “no assurance that the 'possible transaction' will materialise or eventually be consummated." Mr. Li is a founding member of the company and remains a non-executive director and beneficially owns 75% of the issued share capital. The only other major shareholder is HNA Group Co. with a 5% stake. The remaining 20% is publicly traded.

KVB has revealed its intention to sell 50% of its issued shares at the indicative price of HK$0.65 per share as opposed to the prevailing market price. This adds to the likelihood that the events in early November were almost certainly related to abuse of insider information.

The purchase price is subject to further negotiations between the parties involved in the LOI and is still subject to a final agreement via a definitive agreement to be signed at a later date. According to KVB, any remaining shares not bought as part of the takeover will be made available to the buyer via the “first right of refusal regarding the remaining shares for a period of 24 months,” after the completion of the deal.

The takeover deal also includes an exclusivity rights to negotiate the possibile transaction for a period of up to 70 days. For this right, the buyer "agrees to pay an exclusivity fee in the sum of HK$50 million [~$6.4 million]," according to a company statement. In a key clarification, the broker states that all financial services licenses currently held in Hong Kong, Australia and New Zealand will be retained and sold as part of the takeover.