By OH BOON PING
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MAGAZINE publisher Lexicon recently announced a $160 million reverse takeover (RTO), making it the first such deal this year.
But if one tracks the company's history from its days as Panpac Media.com, a struggling publisher, to its present form, it becomes instantly obvious that the company has a record of frequently entering into new businesses which mostly turned out to be letdowns in the end.
In the latest deal, Lexicon will gain ownership of a firm that has developed and invested in Yueyang Taihe Commercial Plaza and Yueyang Taihe Hotel, which are fully leased, and 'should yield regular income which will buffer the group's performance in the near future'.
Also, it may receive options to acquire the rights to development agreements in relation to townships located in Changsha, which can be exercised if such projects are considered to be commercially viable. With the deal in place, the company secured a profit guarantee of $20 million per year on those assets for FY08, FY09 and FY10.
Attractive promises, no doubt. But the company's record of disappointing ventures and investment flip-flops certainly does not inspire much confidence among investors. A case in point was its aggressive foray into the Chinese media business in 2004, which saw Panpac acquire Chinese media companies Media Sky and Observer Star Group.
The publisher later roped in high-profile Chinese couple Bruno Wu and Yang Lan to tap their contacts and experience, with the hope that they could help sniff out more business for the publishing firm.
Renamed Sun Business Network (SBN) in 2005, the company had aimed to achieve revenue in excess of $20 million in FY05, but a number of its new ventures eventually bled red ink and left SBN with a net loss of $102.2 million for the year ended March 31, 2007.
Revenue came to only $9 million in FY07. Following those poor results, SBN - renamed Lexicon later - again went into new businesses such as its acquisition of Sandz Solutions in 2007.
Lexicon had promised at that time that Sandz would be its key business driver and profit contributor, creating a springboard to explore a 'whole new business thrust in the area of enterprise business solutions, a rapidly growing niche market in the booming IT sector'.
But for the half-year ended Sept 30, 2008, the firm was still in the red with a net loss of $2.8 million on publishing revenue of $2.76 million. A dispute over the ownership of Sandz also led to a $15.4 million impairment loss in its investment in Sandz for the financial year ended March 2008.
Besides the unimpressive investment record, it seems that Lexicon sometimes does not see things through. In 2001, it had terminated its plan to invest in Strategic Intelligence Holdings because completion of a satisfactory due diligence exercise on Strategic was not fulfilled. And in 2003, the firm called off a proposed joint-venture agreement with China Xin Media Network Corporation due to largely the same reasons.
At then subsidiary Auston, two deals to buy into a Chinese secondary school in December 2003 and an Indonesian property firm in 2004 also fell through.
Certainly, corporate investments of this sort carry some risks and Lexicon's lacklustre record may not be an indication of future performance.
But, already, the market has seen a number of setbacks in the last two years, and one wonders if Lexicon's latest venture is just one of those deals that looked like a good move initially - only to grapple with challenges later.
That is not to say that the latest RTO does not hold any promise at all. But as the company seeks its success in yet another new business, it has to make sure that history does not repeat itself. Will Lexicon get it right this time around?
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