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BOUSTEAD HEAVY INDUSTRIES CORPORATION BERHAD (”BHIC” or “the Company”) – PROPOSED ACQUISITION OF 51% SHARES IN CONTRAVES ADVANCED DEVICES SDN BHD (”CAD”) BY BHIC DEFENCE TECHNOLOGIES SDN BHD (”BHIC-DT” OR “Purchaser”), A WHOLLY-OWNED SUBSIDIARY OF BHIC (”Proposed Acquisition”)

1. Introduction

BHIC wishes to announce that its wholly-owned subsidiary, BHIC-DT, has on 7 June 2010,  entered into a Share Sale Agreement (”SSA”) with Rheinmetall Air Defence AG (”RHAD” or “Vendor”), for the proposed acquisition of two million five hundred and fifty thousand (2,550,000) ordinary shares of Ringgit Malaysia One (RM1.00) each in CAD (a wholly-owned subsidiary of RHAD) representing fifty one percent (51%) of the total issued and paid-up capital of CAD (Sale Shares).  The investment in CAD is in line with BHIC’s strategy to expand its existing business activities.

2. Total Consideration

The total consideration is fifty one percent (51%) of:

(a)   The net tangible assets of CAD as at 30 June 2010; and

(b)   Euro Two Million (EUR2,000,000) being ten percent (10%) of the Vendor’s Turnover Commitment.  RHAD will commit not less than Euro Twenty Million (EUR20,000,000.00) over a period of five years for the export of Malaysian manufactured defence electronics into the RHAD’s global supply chain.

The estimated purchase consideration of the Proposed Acquisition is RM26 million.

3. Details of the Proposed Acquisition

3.1 Proposed Acquisition

BHIC, through BHIC-DT, will acquire a 51% stake in CAD, whilst RHAD will retain a 49% share in CAD and maintain operational management.

3.2 Background Information on CAD

CAD was established in 1983 and has been manufacturing electronic products for over 25 years in Malaysia.  Its principal activities include manufacturing of industrial Printed Circuit Board Assemblies (PCBAs) and box-build assemblies, production of modules, electronic sub-assemblies, antenna and electronic time relays for the automotive industry, assembly of semi-rigid and flexible RF cables and service and maintenance of military and defence equipment.  It is certified ISO 9001:2000 under Swiss Association for Quality and Management Systems (SQS).

3.3 Details of the Vendor

RHAD was founded in 1889.  It is a key player in the defence and security industry.  Its principal activity is to supply army technology with the primary focus on land systems, weapon and munitions, propellant, air defence, C4ISTAR and simulation and training.

With over 9,300 employees, RHAD has offices in North America and Canada, Europe (France, Switzerland, UK, Scandinavia), Middle East – Abu Dhabi, Asia & Oceania – Australia, Malaysia (Malacca), Singapore, Korea and India.

3.4 Basis of arriving at the purchase consideration and source of funding

The purchase consideration is based on 51% value of CAD’s net tangible assets shown in its Completion Accounts as at 30 June 2010, plus 51% of the Euro 2 Million (EUR2,000,000) (equivalent to RM7.94 million) premium which is based on 10 percent (10%) of the Euro Twenty Million (EUR20,000,000) sales committed by the Vendor from 2011 to 2015.

The purchase consideration for the Proposed Acquisition will be funded by bank borrowings.  The repayment of the bank borrowings shall be internally generated.

3.5 Principal Terms

(1) Conditions Precedent

Completion of the Proposed Acquisition is conditional upon following:

BHIC-DT shall obtain the following:

(a) approval from the Board of Directors of BHIC-DT;

(b) the approval of the shareholders of the BHIC-DT (if required); and

(c) approval(s) of any other relevant authority(ies) which may be necessary for the completion of the purchase of the Sale Shares by BHIC-DT (if required); and

RHAD shall obtain the following:

(a) approval of the Board of Directors of RHAD;

(b) the approval of the shareholders of RHAD (if required); and

(c) the approval(s) of any other relevant authority(ies) which may be necessary for the completion of the sale of the Sale Shares by the RHAD (if required).

(2) Purchase Consideration

The total consideration for the Sale Shares is fifty one percent (51%) of:

a. the net tangible assets of the Company based on the Completion Accounts; plus

b. EUR2,000,000 being ten percent (10%) of RHAD’s commitment that it shall procure from its group of companies turnover worth EUR20,000,000.00 over a period of five (5) years commencing from 1 January 2011.

3.6 Shareholders’ Agreement between BHIC-DT and RHAD

Upon completion of the SSA, BHIC-DT and RHAD will enter into a shareholders’ agreement to reflect the long-term relationship and strategic cooperation between BHIC-DT and RHAD in relation to their shareholding interests in CAD.

3.7 Percentage Ratio

The highest percentage ratio applicable to the transaction pursuant to paragraph 10.02(g) of the Bursa Malaysia Listing Requirements is 11.66% (based on an estimated purchase consideration of RM26 million).

4. Rationale of the Proposed Acquisition

BHIC, through BHIC-DT, and RHAD intend to collaborate further to serve new markets as well as enable a technology transfer that will substantially benefit the Malaysian industry, specifically the Malaysian commercial and defence industry.  It is the intention for both BHIC and RHAD to enter into a collaboration agreement that will set out the framework of the strategic alliance.

This partnership seeks to foster the growth of high-tech production in Malaysia to strengthen the country’s defence technology industrial base and open additional opportunities for exports.

5. Financial Information

The net assets and profit after tax of CAD for the last three financial years is as follows:

RM’ million 2007 2008 2009
Net Assets 46.911 52.942 56.417
Profit after tax 4.568 6.031 3.475

6. Liabilities

Save for the trade liabilities, there are no other liabilities to be assumed by BHIC-DT pursuant to the Proposed Acquisition.

7. Financial Effects of the Proposed Acquisition

The Proposed Acquisition is not expected to have a material impact on the consolidated earnings per share of BHIC for the financial year ending 31 December 2010.

The Proposed Acquisition is not expected to have a material impact on the gearing and the net assets per share of the BHIC Group.

The Proposed Acquisition will not have any effect on the share capital of and substantial shareholders’ shareholdings in BHIC.

8. Directors’ and Major Shareholders’ Interest

To the best of our knowledge, none of BHIC nor BHIC-DT’s Directors and/ or major shareholders and/or persons connected to them has any interest, direct or indirect in the Proposed Acquisition.

9. Directors’ Statement

The Board of Directors, after careful deliberation, is of the opinion that the Proposed Acquisition is in the best interest of the BHIC Group.

10. Document for Inspection

The SSA is available for inspection at the registered office of BHIC at Level 17, Menara Boustead, 69, Jalan Raja Chulan, 50200 Kuala Lumpur during normal business hours from Mondays to Fridays (except public holidays) for a period of three (3) months from the date of this announcement.

11. Risk factors

The Proposed Acquisition is subject to normal acquisition and business risks.

12. Estimated timeframe of completion

The Proposed Acquisition is estimated to be completed by 30 September 2010.

13. Announcement Date

This announcement is dated 7 June 2010.



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