Midas is acquiring 100% stake in Huicheng Capital, a Hong Kong-based aluminium product specialist owned by its Chairman and six other individuals, for up to $264m.
Huicheng capital is the owner of Dalian Huicheng, based in China and its main products are aluminium alloy stretched plates and hot-rolled aluminium alloy plates and coils.
The group believes that the acquisition can help diversify its range of products and services, which currently only offers aluminium alloy extrusion and cold-rolled plates and sheets product offerings.
It is also expected to widen customer base from just rail transportation, to include aviation, aerospace, marine, automotive and petrochemical industries, thereby presenting cross-selling opportunities to the group.
Moreover, the deal would be a vertical integration for Midas as it can now source for raw materials such as hot-rolled aluminium alloy plates and coils for its cold-rolling plant from Dalian Huicheng.
The potential acquisition price of $264m can be divided into $166.3m in initial consideration, and up to $97.7m in earn-out consideration. An independent valuation suggests that Huicheng Capital is worth Rmb 1.27b ($279.8m) as at 31 Aug 2015.
Midas plans to finance the acquisition via an issuance of 733.3m new shares at $0.36 per share, representing 60.2% of its current share capital.
On financial impact, if assuming the acquisition was transacted at 31 Dec 2014, EPS will be diluted to 3.61 Fen from 4.63 Fen, and NTA per share will decline to Rmb1.87 from Rmb2.46.
Midas is currently trading at 29.8x forward P/E. The street has 1 Buy and 2 Hold ratings with a consensus TP of $0.30 on the counter.