THERE ARE certain interesting parts in the circular that Global Yellow Pages recently sent to its shareholders.

The circular, dated July 11, was uploaded to the SGX website yesterday in connection with an EGM of Global Yellow Pages on July 26 for shareholders to vote on two resolutions:

>> The proposed acquisition of equity interest in Yamada Green Resources Limited (from Hydrex International - a special purpose vehicle owned by Sam Goi and angel investor Koh Boon Hwee). 

>> The proposed share swap of 41,122,305 shares in Yamada Green Resources Limited representing 8.25% equity interest in Yamada Green Resources Limited with 82,244,610 new shares representing 12.06% of the enlarged share capital of the company.

Global Yellow Pages said in its circular: "The Company believes that the Proposed Acquisition and the Proposed Share Swap is a strategic investment into the food business which will bring substantial benefits to the Company and the Shareholders as Yamada is highly diversified by sector and geography." 

(So the company explicitly says it believes there will be "substantial benefits" to the company and its shareholders. However, one would find the reason given ("as Yamada is highly diversified by sector and geography") is not convincing since it does not follow that the diversification will bring "substantial benefits" for shareholders. One can read the rest of the circular and learn more about Yamada's business from other publications to make a more informed judgement of whether Yamada can bring substantial benefits not only to Global Yellow Pages shareholders but also to its own shareholders.)

Global Yellow Pages currently owns 15.647 million shares of Yamada, or a 3.14% stake, which were bought on the open market in recent months.

fallen_logsYamada is a major cultivator of shiitake mushroom in Fujian province. It also owns eucalyptus plantations from which it harvests logs (above)  that it processes for sawdust. In turn, the sawdust is used in the production of synthetic logs that form the base material on which mushrooms are grown. Photo: CompanyYamada operates one of the largest shiitake mushroom cultivation bases in Fujian province in China.

Its FY2012 (ended June 2012) net profit was S$28.64 million while it reported 9MFY2013 profit of S$14.17 million. 

Signalling its interest in buying more Yamada shares, Global Yellow Pages also said: "The Company may make further on-market purchases of Yamada Shares during the period between the Latest Practicable Date and the date of the Proposed Acquisition and Proposed Share Swap EGM and will provide an update by way of announcements on SGXNet."

("Latest Practicable Date" refers to 1 July 2013, which is prior to the printing of the circular)

The following text in italics is excerpted from the Global Yellow Pages circular:

Further Acquisitions of Yamada Shares

The Company may from time to time acquire Yamada Shares as the Directors of the Company deem appropriate subject to applicable rules and regulations. The current intention of the Company is not to trigger any obligation under the Code to make any general offer for all the shares of Yamada.

Shareholders’ approval of Ordinary Resolution 1 is not conditional on Shareholders’ approval of Ordinary Resolution 2 and vice versa.

Shareholders are to note that if Ordinary Resolution 1 is not approved, the Company will not be able to complete the Proposed Acquisition. If Ordinary Resolution 2 is not approved, the Company will not be able to complete the Proposed Share Swap.

However, if either Ordinary Resolution 1 or Ordinary  Resolution 2 is approved by the Shareholders, it will give the Company the necessary authority to acquire more Yamada Shares (subject to applicable rules and regulations) up to the relevant thresholds for very substantial acquisitions or reverse takeover transactions as set out Chapter 10 of the Listing Manual (not exceeding 100% of the relative values of Rule 1006 (other than Rule 1006 (b) – profit test) of the Listing Manual or which result in a change of control of the Company).

In the event any of the relative values of Rule 1006 (other than Rule 1006 (b) – profit test) exceed 100% or if the future acquisitions (including but not limited to on market purchases) of Yamada Shares result in a change of control of the Company, the Company will have to comply with the requirements of Rule 1015 of the Listing Manual.

Global Yellow Pages will own 19.87% of Yamada if the two resolutions are approved by shareholders at the EGM. In its circular, Global Yellow Pages has also highlighted risks associated with investing in Yamada.

For the full 36-page circular posted on the SGX website, click here.

Recent story: YAMADA GREEN RESOURCES: Lively Q&A with the chairman

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#9 diversity 2013-07-23 10:20
Any speculation as to how Mr Sam Goi can help Yamada grow?
What does Global Yellow Pages hope to achieve in its investment in Yamada? To merely recognise a portion of Yamada profit?
#8 ethan 2013-07-19 14:30
Jeremy, point taken on the revenue share.

However, let's put this in perspective. In q2, revenue from black fungus was a mere 6.4 million rmb compared to overall revenue of 179.6 million rmb. Also, the processed food segment doesn't seem to be generating much if any net profits/barely breaking even, as can be seen from the fact that every time Yamada is in the low season for Shitake mushrooms, it barely makes any net profit - in fact in the last 2 low season quarters I think Yamada made a loss. Therefore it is heavily heavily dependent on one product per se - shitake mushrooms. The fact remains that this cannot be described as a highly diversified agribusiness.
#7 hayashi 2013-07-18 18:31
There are a few interesting details with this series of proposed transactions.

Firstly, why make a listed company buy into another listed company? If potential investors are interested in mushroom business, they can just buy Yamada direct. If GBL shareholders agree that mushroom business is good, they can sell their GBL shares now and buy Yamada shares themselves. Why own shares in GBL, have staff and director that cost money, only to own Yamamda indirectly through GBL?

Secondly, this looks to be a very good series of transactions for Mr Goi. I dn't have the numbers handy, but basically, he bought a big stake in Yamada not too long ago at low price, and also took a stake in GBL via placement at a low price. Part of this transaction for GBL involve GBL buying SG's Yamada stake at a price much higher than what he paid for, effectively giving him with a very profitable early partial exit, and he still retains sizeable stakes in both Yamada and GBL. GBL shareholders would have to ask why can't GBL also do a share swap with SG and Hydrex, similar to what they are doing with Yamada CEO? That would surely align all interests.
#6 Yamander 2013-07-18 16:32
There are many bigger Shitake growers in China. Yamada is just one of the bigger ones in that region of China...

Since there are only 2 products (shitake and black fungus), what is the likelihood that the harvesting got screwed up?
#5 Jeremy 2013-07-18 16:06
Ethan, you may want to read FY2012 report. Firstly,there are 2 cultivated products - Shitake and Black Fungus.

Secondly, Rev for edible fungi (both shitake and black fungus) contributes 71% rev while processed food contribute the other 29% (and not 5%)

81% for sales in major cities within China and 19% for export to Japan.

Important to get the facts right if you are serious investor.
#4 ethan 2013-07-18 07:28
Yes but 95% of its revenue is coming from 1 product - Shitake Mushrooms. That's not what I would consider to be a highly diversified agribusiness at all. This is not necessarily bad but less diversity does mean higher risk. The main thing is I feel calling Yamada Green a highly diversified agribusiness is an inaccurate description of the company.
#3 Jeremy 2013-07-17 18:14
Yamada has just acquired a bamboo shoot plantation.

It also operate a process food plant supported by a food research lab. The division markets and distributes its owned brands to major cities: 7th manor, 7th element, Wan Cheong, lazybone Kitchen, food area, etc.
#2 Ah Beng 2013-07-17 16:08
Ethan, you are right about Yamada not being highly diversified by sector. You didn't comment on the Circular's description that Yamada is highly diversified by geography. It's also inaccurate when their mushrooms are sold only in Fujian province. They export some stuff to Japan but I understand it's not a big %. So where's the geographical High Diversification ?
#1 ethan 2013-07-17 14:26
Not sure how Yamada can be classified as highly diversified by sector. Clearly it's main focus and business remains Shitake Mushrooms and other products are still peripheral for now. China Minzhong is an example of a highly diversified agri-business able to adjust to seasonal changes in demand and supply. Yamada Green is nothing like that.

Nevertheless, a lot of 'big boys' seem interested in Yamada and that should give shareholder's hope for the time being.

Ultimately though, the company will have to show that the interest is justified and well merited. To date, I have not been particularly impressed with their seemingly lethargic ways and lack of coherent and ambitious growth strategies. The stakes are high with their eucalyptus plantations. Let's see whether they can succeed in using them to grow mushrooms. Personally I feel they should have been sure it could work before investing hundreds of millions in the eucalyptus plantations. The amounts they have invested means they cannot afford for it to fail.

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