SMB United -- takeover bid by Boer

(03-11-2011, 09:06 AM)cif5000 Wrote: Why should the stock trade at 0.305/0.31?

My guess..

Rationale for those selling at .305/.31
- do not think that the takeover will go through
- SMB valued at the above price is a premium to them = do not think SMB will see much upside gain

Rationale for those buying at these levels
- think the takeover will go through & wants to price in that small spread (against .32) gain
- think that SMB has higher value than current level
- speculating that Boer will up its takeover bid

(03-11-2011, 09:34 AM)dzwm87 Wrote:

(03-11-2011, 09:06 AM)cif5000 Wrote: Why should the stock trade at 0.305/0.31?

My guess..

Rationale for those selling at .305/.31
- do not think that the takeover will go through
- SMB valued at the above price is a premium to them = do not think SMB will see much upside gain

Rationale for those buying at these levels
- think the takeover will go through & wants to price in that small spread (against .32) gain
- think that SMB has higher value than current level
- speculating that Boer will up its takeover bid

Thank you. Shouldn't Boer be buying?

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I try answering my own question.

Boer will start buying after their EGM.

cif5000
Before obtaining its shareholders' approval in an EGM to acquire SMB, Boer may still be able to buy enough SMB shares so long as the totality of the purchases does not constitute a very substantial acquisition.
The high turnover of SMB shares today was likely to have been caused by Boer.

(03-11-2011, 11:57 PM)portuser Wrote: cif5000
Before obtaining its shareholders' approval in an EGM to acquire SMB, Boer may still be able to buy enough SMB shares so long as the totality of the purchases does not constitute a very substantial acquisition.
The high turnover of SMB shares today was likely to have been caused by Boer.

If I am not wrong, Boer will have to disclose the dealings by 12 noon today if they had indeed bought shares yesterday. We will see...

...and if they were the buyer, I would say their dealers had done a great job for not pushing up the price to 0.315/0.32.

Accordingly, it was an unsolicited bid by Boer. It is a tricky situation here as offer price is unattractive to SMB's major shareholders. But the public shareholders (largely small holders) may still agree to throw in their holdings. Boer's own share price has been under serious selling pressure in recent months on the back of earnings slowdown and China railway accident. SMB may have been on Boer's M&A radar and timing of the offer may help them erase some negatives. Boer is valueing SMB @ EV/EBITDA of 5.3x (6.2x EBIT) against their own corresponding of 4.2x ( 4.6x), thus there maybe little room for them to improve offer price. Not ruling out the possibility of a "white knight" in aid of SMB's defence. SMB is a classic case for private equity fund - undervalued, no liquidity, ageing management, steady free cash flow, good balance sheet. Time is running out, though.

Offer document has just been released this morning at SGX Announcements.

Boer has yet to got any stake in SMB, which shows that the recent huge volume in buying is all based on risk arbitrage opportunists.

Boer price has been whacked down to HK$2.26, indicating opportunity to enter. It will be interesting to see how things will go from here.

Waiting for SMB's IFA advice..

*vested in both Boer & SMB*

SMB 3Q results announcement has provided confirmation that its smart metering business is doing very well.
For the 9 months of 2011, sales amounted to $101m and operating profit $15.1m. For the whole of 2010, operating pofit was $12.6m from $98.5 sales.
sales.
No wonder Boer is finding SMB an attractive takeover target.

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SMB's 3Q group profit was $7m. Nine-month group profit was $17.4m, inclusive of the $2.8m non-controlling interests.
Since EDMI and Quantum Automation have already been wholly-owned by SMB in the current year; group profit, rather than attributable profit, should be a better measure.
If 3Q group profit is repeated in 4Q, SMB group profit for 2011 will be $24.4m, or 5c per share. Boer's 32c bid therefore values SMB for a mere PER of 6.5.
SMB's 2010 attributable profit ($13.6m) was much lower than its group profit ($17.7m); because its stake in EDMI then was below 60%.
Group profit should be the relevant measure in evaluating the reasonableness of Boer's offer. One has to take cognizance of the recent restructruing within SMB.

Yes, got to say EDMI's growth is remarkable - despite lower growth from Europe market.

They did mentioned of a substantial customer contributing $25m - suspected it's one of the Australasian customers who has continued its halted orders in FY2010.

SMB is also no longer on a net cash position - main catalyst will be on its growth in EDMI - JB plant is for global ex China smart metering market

Nonetheless, it sound like SMB is worth more than the 32c Boer is offering!

Will be anticipating SMB's IFA document offer reply to Boer's offer

UK-based Centaurus has bought more than 5% of SMB shares in the open market. Is Centaurus motivated by EDMI's strong presence in the UK where smart metering will be rolld out for homes in the near future?

I believe Centaurus is likely to be in an acquisition arbitrage situation.

Currently, most bid is at 0.315 and if you get a large position in SMB, the 0.005 spread is a pretty good arbitrage opportunity I would say. There is also an added potential for a higher bid as well.