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Eric Ng

Melco International Development's share price rocketed yesterday following news it planned a complex reverse takeover deal with e-commerce solutions provider iMerchants.

 The share price of the floating-restaurant operator, which is controlled by casino-magnate Stanley Ho Hung-sun and his associates, finished at $3.85, up $2.85.

 Melco's proposed deal with iMerchants made it the latest in a series of stocks that have seen their prices soar in heavy volumes as Hong Kong investors are swept up by Internet euphoria.

 However, Melco's plan to get into cyberspace could yet be derailed.

 The stock exchange yesterday said Melco's proposal would result in a substantial acquisition and it should be viewed as a new listing.

 The proposal would result in a change of control at Melco, as iMerchants managing director Leroy Kung Lin-yuen would end up with a controlling 61.4 per cent stake in the company.

 Under stock exchange rules, this would trigger a mandatory general offer to Melco shareholders not involved in the transaction.

 Melco, which was ordered by the stock exchange to make a statement on the unusual movement of its share price, said: 'The board would also like to remind investors . . . the stock exchange has informed the company that the acquisition is a very substantial acquisition and would be treated as a new listing application.'  Melco, however, said it was seeking a review of the stock exchange's decision.

 'If the acquisition would still be treated as a very substantial acquisition and a new listing application after the review, the current heads of agreement for the acquisition will lapse,' the company said.

 In a complex arrangement to acquire an indirect iMerchants stake, Melco would purchase a 48.75 per cent holding in Exploration Enterprises from Mr Kung for $390 million.

 Mr Kung would then inject iMerchants' assets into Exploration Enterprises.

 Melco would pay for the acquisition by issuing $119 million in new shares, and $270.3 million in convertible bonds and options.

 Under exchange rules, acquisitions by listed companies of unlisted assets whose value represents 100 per cent or more of the acquiring company's total asset value would be deemed a substantial acquisition requiring a review of its listing status.

 The indicative valuation of Exploration Enterprises is $800 million, subject to independent valuation.

 Melco's assets amounted to $457.77 million at the end of last year, according to its annual report.

 An acquisition could also be regarded as a new listing if the business nature of the acquired company is substantially different from that of the acquiring company, according to an exchange source said.

 On full conversion of the bonds and options into Melco shares, Mr Kung would be in control of Melco.

 The stake of Mr Ho and associates would be diluted to 17.4 per cent from 45 per cent.

 Last month, food distributor and property investor Yoshiya International failed in an attempt to acquire a stake in iMerchants.

 Locally listed Yoshiya's share price jumped 80.5 cents to $1.21 on November 19 on news of its bid for the iMerchants holding.

 When the transaction fell through five days later, the stock fell 42 cents to 52 cents.

 Yesterday, turnover in Melco's shares was a heavy $41.47 million.

 Brokers said Melco's surge yesterday was not surprising, given the counter's low liquidity.

 'The current stock price probably reflected the good news,' Celestial Asia Securities analyst William Li Kin-tung said.

 However, Melco's share price could decline if its proposed deal with iMerchants falls through, he said.



Melco soars on plan for e-commerce