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Review finds no systemic failure by Datapulse to apply due process in M&As

AN EXCHANGE-mandated review of Datapulse Technology's internal controls has found no systemic failure to apply due process in evaluating mergers and acquisitions (M&A), according to a report released on Sunday night.

Law firm Lee & Lee, which was appointed following a notice of compliance by the Singapore Exchange (SGX) to carry out the review, nevertheless made several recommendations for the media storage company to strengthen its internal controls.

Lee & Lee reviewed nine M&A deals evaluated by Datapulse between 2000 and 2018. The reviewer said that it was unable to find express discussions of the implications of the interested person transactions and acquisitions and realisations sections of the SGX Listing Manual in Datapulse's meeting minutes, resolutions or announcements for a few of the deals, although this was not necessarily an indication of a breach of listing rules.

It also said that it had sighted the company's treasury policy and cash management policy, but was unable to confirm if Datapulse had applied them in evaluating and approving the M&As, as the approving resolutions did not refer specifically to the policies.

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In the proposed acquisition of hair care business Wayco, which came under criticism and which led SGX to order the review, Lee & Lee described a hasty process to push the deal through without carrying out due diligence.

Datapulse had decided on Dec 13 that it was prepared to complete the acquisition of Wayco without due diligence provided the vendor agreed to buy back Wayco for the same amount if Datapulse discovered any material adverse irregularity or defect in Wayco after the acquisition, the reviewer reported. The parties signed a supplemental agreement containing the buyback undertaking on Dec 15 and completed the Wayco acquisition that day.

Lee & Lee noted that the supplemental agreement did not elaborate on or define the terms "material adverse effect" and "material extent" in the buyback undertaking, leaving it open to interpretation. Also, a clause in the agreement stating that Datapulse would have to be satisfied with the results of financial and legal due diligence on Wayco before the acquisition could be completed, was absent in the supplemental agreement.

Lee & Lee said that the board's rationale for acquiring Wayco so quickly was that Datapulse would be deemed a cash company after its disposal of 15A Tai Seng Drive was completed and would risk having its shares suspended and being disadvantaged in negotiating potential M&As. However, Lee & Lee noted that the SGX would have provided a grace period of 12 months and may have allowed continued trading in a cash company's securities on a case-by-case basis.

Questions were also raised regarding a 2015 approval for the acquisition of interests in property asset Goldprime Realty. Goldprime had a plan to acquire property in Melbourne for A$24.35 million for redevelopment, but that investment was not disclosed in Datapulse's announcement on Oct 19, 2015. The current management did not have requested information to explain the lack of disclosure, Lee & Lee said.

Datapulse said that it will release further information on Goldprime in due course after additional review by Lee & Lee.

Lee & Lee recommended that Datapulse improve its board's expertise in corporate governance and compliance with the Companies Act, the Code and Listing Manual; establish a board risk committee to provide primary governance and risk oversight; and consider appointing directors who have legal and compliance expertise and strong experience in undertaking M&As for SGX-listed companies.

Datapulse said that it has adopted all the recommendations on improvements to internal controls and corporate governance save for the recommendation to establish a board risk committee.

"Given the current scale and scope of the company’s operations, it may not be necessary or appropriate at this juncture to establish a separate board risk committee and it is proposed that the audit committee assumes the proposed functions of a board risk committee," Datapulse said.