-Two Hong Kong-listed companies are poised to take
a flutter on Macau's gambling boom over the opposition
of their independent directors and the advice of their
two interlinked companies, Heritage International Holdings
and China United International Holdings, want to stake
a combined HK$250 million to take a 50 percent interest
in Found Macau Investments International, a holding company
recently established by the stepfather of Heritage's managing
director and two partners to make gambling and entertainment
investments in Macau.
told its shareholders in a circular distributed Friday
that Found Macau ``expects to enter into preliminary agreements
shortly'' to invest in a HK$240 million-HK$300 million
deal for a vacant site to build a casino hotel and a HK$150
million deal to buy an existing hotel and renovate it
to include a casino. It added, however, that no progress
had been made on the deals in the past month.
which has already invested in Macau junket agents, has
proposed to its shareholders that it take a 20 percent
stake in Found Macau. The investment would take the form
of a HK$100 million unsecured, interest-free loan, half
in cash and half a bond convertible into Heritage stock.
United is similarly slated to buy 30 percent of Found
Macau and provide a HK$150 million loan. Unity Investments
International, another interlinked listed company, will
buy 1 percent of Found Macau and extend a HK$5 million
Heritage's three independent directors - Chan Sze-hung,
To Shing-chuen and Frank Miu - concluded the proposed
deal is ``not fair and reasonable'' to Heritage public
shareholders and ``not in the best interest of the company
and its shareholders,'' according to a letter from the
group attached to the deal circular. The directors base
their recommendation to shareholders to reject the deal
on the advice of Kim Eng Corporate Finance (Hong Kong).
Eng's attached report found the deal to be unacceptably
risky to Heritage's shareholders given the uncertainty
over whether Found Macau will generate any profit and
the potential dilution of shareholders' stake in the company
from 90 percent to 64 percent. That dilution would occur
through the convertible bond to be issued to Found Macau
and another HK$100 million-HK$150 million in interest-free
convertible bonds Heritage would issue to raise funds
to finance the shareholder loan to Found Macau.
new debt would also ``have a material adverse impact''
on the company's financial position, the bank determined.
directors and their financial advisers rarely object to
deals in this way in Hong Kong.
lawyer specializing in corporate finance estimated that
opposition arises in less than 2 percent of proposed transactions.
higher profile protest by the directors of eSun Holdings
led its shareholders to reject a buyout offer from parent
company Lai Sun Development in 2003; most public shareholders
of SmarTone Telecommunications also followed advice to
reject a buyout from Sun Hung Kai Properties the same
Found Macau deal will not be sidetracked as easily. The
independent directors of China United came to the same
conclusion as their counterparts at Heritage after receiving
identical advice from Kim Eng, yet all of the 515.8 million
independently held shares voted at China United's extraordinary
general meeting last Monday were cast in favor of management's
Found Macau plan, according to a company announcement.
China United's 1.5 billion shares outstanding, 989.7 million
were eligible to be voted on the proposal.
are scheduled to vote on Heritage's Found Macau plan on
March 14. Its last annual report listed casino tycoon
Stanley Ho as holding 4.2 percent of Heritage shares.
The small size of Unity Investment's proposed contribution
means it can proceed without a shareholder vote.