THE recent goings-on between two companies controlled by WBL Corp seem like a comedy of errors.

First, WBL's American subsidiary, Nasdaq-listed Multi-Fineline Electronix Inc (M-Flex), decided that it had made a mistake in making a bid for the mini conglomerate's Singapore mainboard-listed subsidiary, MFS Technology.

An independent special committee of M-Flex's board recommended to its shareholders not to vote in favour of the takeover citing, among other things, that, 'under the current terms, the offer is contrary to the best interests of M-Flex and its unaffiliated stockholders'.

No unilateral withdrawal

M-Flex's chief executive Phil Harding, in echoing the special committee's views, said: 'In light of recent developments, the acquisition no longer makes financial sense under the existing price and terms.'

The proposed US$500 million transaction, announced in March, would have created the world's second-largest maker of flexible printed circuit boards in revenue terms. Under Singapore's takeover code, M-Flex is not allowed to unilaterally withdraw the takeover offer without the consent of the island's stockmarket watchdog, the Securities Industry Council (SIC).

So M-Flex, based in Anaheim, California, applied to the SIC for permission to withdraw its offer for MFS, whose fortunes appear to be gradually dimming. MFS had earlier reported that net profit for the three months to June 30, 2006 had dropped 84 per cent to $1.04 million from the previous corresponding quarter. Revenues had fallen 8 per cent to $71.9 million.

But by making public its intention to withdraw from the deal, M-Flex appears to have put the cart before the horse.

Last week, SIC denied M-Flex permission for its unprecedented action to call off the deal. Although the American company has said it will appeal against the SIC decision, the whole exercise has placed mainboard-listed parent WBL in a quandary.

WBL (previously known as Wearnes), which is known mainly for selling Jaguar and other cars, owns 56 per cent of MFS and has a deemed interest in about 61 per cent of M-Flex. It has provided an irrevocable commitment to both M-Flex and MFS to support the transaction. On hindsight, that might not have been a good move; which side is it going to support now?

WBL (previously known as Wearnes), which is known mainly for selling Jaguar and other cars, owns 56 per cent of MFS and has a deemed interest in about 61 per cent of M-Flex. It has provided an irrevocable commitment to both M-Flex and MFS to support the transaction. On hindsight, that might not have been a good move; which side is it going to support now?

If the transaction goes through, WBL, which had opted for stock in M-Flex, would end up owning between 59 and 68 per cent of M-Flex's enlarged capital, depending on what proportion of MFS's shareholders opt for either the share or cash offer.

If the transaction goes through, WBL, which had opted for stock in M-Flex, would end up owning between 59 and 68 per cent of M-Flex's enlarged capital, depending on what proportion of MFS's shareholders opt for either the share or cash offer.

MFS shares have fallen to as low as 65 cents since the M-Flex announcement to withdraw its offer, although they have recovered somewhat since. But at just over 80 cents at yesterday's close on the Singapore Exchange, the price is way off M-Flex's offer of $1.15-$1.20 a share.

In a fix

And if M-Flex decides to ignore SIC's ruling, that would also leave the watchdog in a quandary. What action can it take against the Delaware-incorporated company?

Under the rules, SIC - which has no legal powers to enforce its rulings - 'may have recourse to private reprimand or public censure or, in a flagrant case, to further action designed to deprive the offender temporarily or permanently of its ability to enjoy the facilities of the securities market'.

M-Flex may decide that it does not need the facilities of the securities market here. Can SIC then take action against the majority shareholder of M-Flex - namely, Singapore-listed WBL Corp? Perhaps.