Goodpack

Private equity generally do not do deals where they could not see themselves making 2.0 - 3.0 x their equity in a 3 years timeframe. Criteria for such acquisitions (typically in the order of importance) must be

1) highly cash generative
2) has been growing, and will continue to show excellent growth prospects
3) sticky revenues that could withstand market cycles

Goodpack has all three, plus an [b] outstanding economic moat around its network. The current earnings reported significantly understate the cash generation potential of the company. They write down their containers with a depreciation schedule between 10-15 years, but the founder himself said that these things last for 35 years with a little bit of maintenance in between.

They are also at the tail end of a very heavy capex cycle for supporting a number of core customer startups, and the revenues will start coming in the next 18 months. This is in addition to them potentially gaining ground in the automotive trials in which they had spent considerable time and resources getting qualified across the supply chain.

Current earnings run rate will come in about US$52 mil (growing at about 10% p.a.) and the acquisition values it about 20x. If you reprice the depreciation it should be c. US$60 mil. Add in expected growth from new capex spend you will likely see net profit of something north of US$70 mil, with more future growth. How much are you paying for supermarket groups with staple revenue/profit profiles? Goodpack has zero customer dropouts over the years. How much is this worth?

While outside investors like us has no control over the capital structure (unlike PE groups who can use debt/capital structuring etc to generate such outsized returns) and therefore cash-flow based valuations are somewhat unrealistic why should I give up a steady 10-15% grower in the next 5-7 years so that they (PE group) can make outsized returns for themselves? Minority investors = charity?

If they are not bought today, someone else will be interested - and time is the friend of a good business. Ask Brambles. They have been bitching about how expensive Goodpack is since don't know when - and the business has only gotten better over time.

PS: I have my own speculations of why the deal is on a SOA rather than a straightforward GO. One of the reason is if KKR nicks it cheap then its easier to share the pie with the management post deal via equity participation. Minorities will just get their lousy S$2.50 a share

(28-05-2014, 10:47 AM)specuvestor Wrote:

(28-05-2014, 08:34 AM)nitro Wrote:

(27-05-2014, 11:08 PM)thefarside Wrote: This will be harder than the Nera fight, I fear.

Quote: The Scheme will require, inter alia, the following approvals:

10.1.1 the approval of the Scheme by a majority in number of Shareholders representing not less than three-fourths in value of the Shares held by Shareholders present and voting either in person or by proxy at the Court Meeting; and

10.1.2 the sanction of the Scheme by the Court.

KKR has Lam Choon Sen's undertaking to vote for the transaction (32%) , at minimum the "opposition" needs to bring 12% to shoot it down, provided KKR does not canvass for more for votes.

SIC actually sanctioned this backdoor takeover exercise (!) using vanilla conditions like no concert parties can vote for this etc... can't believe it. KKR is smart enough not to accumulate anything and end up with a substantial amount of shares locked out of voting as a concert party. Instead of mounting a direct GO after buying out David Lam they instead used his stake as a Trojan Horse to take the company private. Very disappointed with management for allowing these snakes to come on board.

The only hope now is some big guns come out and vote against this. Minorities are just roadkill for now for all practical purposes - but please still stand up for your rights in whatever EGM/voting!!!

Just to confirm using SOA method, once 75% in value of of the Shares held by Shareholders present approved, KRR can get it delisted by paying minority $2.50/share.

This is unlike the GO method, where the offerer needs to get >90% to get the company delisted?

If SOA fails, everything back to normal.

(28-05-2014, 08:51 AM)opmi Wrote: ^ you mean SOA - Scheme of Arrangement.

Yes. The level of 'squeeze out' via SOA is lower than COMPULSORY ACQ under S215 COMPANIES ACT.

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Just to clarify: I think SOA is used to privatised (not delist) a company with just 75% shareholders present and majority of headcounts are in agreement. That is reason why some choose SOA rather than the simple GO. That also means it is a "trick" used by the smaller companies.

As HitandRun pointed out, employees and whatever proxies will also come. I'm wondering why no one busted them like the case of PCCW or is SIC and SGX not aware?

Specuvestor is correct.
A Scheme of Arrangement does not squeeze out minority shareholders. It simply privatises the company. So, as a minority investor, if you think there is still substantial upside to the value of Goodpack (as KKR clearly thinks) then you can decide not to tender your shares and end up with the same shareholding in a privatised Goodpack. If KKR does a good job with Goodpack and subsequently sells it at a profit, you will also benefit. However, there will be no liquidity in your shares in a privatised Goodpack.

In order to force the minority shareholders to sell, and offeror for a company needs to control 90% of the shares, at which point the remaining 10% are forced to sell their shares at the offer price.

For a long term investor, with a strong view on the company, it is not a bad strategy to not tender but it does mean that you have be in for the long ride as the likes of KKR would typically only look to exit after 5 years (and it could be as long as 10 years).

(28-05-2014, 11:14 AM)GreedandFear Wrote: A Scheme of Arrangement does not squeeze out minority shareholders. It simply privatises the company. So, as a minority investor, if you think there is still substantial upside to the value of Goodpack (as KKR clearly thinks) then you can decide not to tender your shares and end up with the same shareholding in a privatised Goodpack. If KKR does a good job with Goodpack and subsequently sells it at a profit, you will also benefit. However, there will be no liquidity in your shares in a privatised Goodpack.

In order to force the minority shareholders to sell, and offeror for a company needs to control 90% of the shares, at which point the remaining 10% are forced to sell their shares at the offer price.

For a long term investor, with a strong view on the company, it is not a bad strategy to not tender but it does mean that you have be in for the long ride as the likes of KKR would typically only look to exit after 5 years (and it could be as long as 10 years).

If the Scheme is approved at the meeting (i.e. majority in numbers of shareholders AND 75% in number of shares), ALL shares will be acquired by the offeror at the offer price even for those who had earlier voted against the Scheme. 100%.

(28-05-2014, 10:47 AM)specuvestor Wrote: Just to clarify: I think SOA is used to privatised (not delist) a company with just 75% shareholders present and majority of headcounts are in agreement. That is reason why some choose SOA rather than the simple GO. That also means it is a "trick" used by the smaller companies.

As HitandRun pointed out, employees and whatever proxies will also come. I'm wondering why no one busted them like the case of PCCW or is SIC and SGX not aware?

Yes, the SOA is a mean to reorg capital structure of a company (privatisation), rather than to delist. However, at the end of day, it will be delisted, if the SOA went thru.

I wouldn't take it as "short-cut", but rather a variance in option for the offeror. For offeror opting for none or all, SOA is a better option than GO, but SOA is also easier to be voted down and subject to sanctioned by the court.

All shareholders are entitled to attend, and the limit of 2 proxies per shareholder is still there, IIRC. If it is a low ball offer, and minorities fail to vote it down, then who should be blamed?

(not vested)

Dear all,

I think you all misunderstood the Scheme of Arrangement. Under the scheme, once it is approved at the scheme meeting and no objection from the court, the scheme is effective and binding to all shareholders. All shareholders will have their shares acquired and the company will be delisted. There is no such thing as holding unlisted shares once the scheme is effective. KKR using this method meant that they either acquire all the shares of Goodpack or they end up with nothing if the scheme is not approved.

Scheme Meeting. The Scheme will require, inter alia, the following approvals:
10.1.1 the approval of the Scheme by a majority in number of the Shareholders present
and voting, either in person or by proxy, at the Scheme Meeting, such majority
holding not less than 75 per cent. in value of the Company Shares voted at the
Scheme Meeting; and
10.1.2 the sanction of the Scheme by the Court.
In addition, the Scheme will only become effective if all the Conditions Precedent specified
in the Implementation Agreement have been satisfied in accordance with the
Implementation Agreement and a copy of the order of the Court has been lodged with
ACRA.

Although one may feel that 75% approval at the scheme is a low percentage for it to go through, they also need majority in numbers. The Nera Tel scheme is a classic example whereby minorities turning out in numbers can vote out the scheme, despite the majority holding more than 75% of the shares.

(28-05-2014, 10:07 AM)AlphaQuant Wrote: using usdsgd 1.25 and the offer of 2.50 SGD, i get:

EV/EBITDA 14.9 (assuming 80mio USD of EBITDA)
PE 20.8
PB 3.2
Dvd yield 2%

Latest 3Q numbers indicate YTD EBITDA about US$72 mil. Full year likely to come in about US$95-97 mil, based on quarterly run rates number. If you include the revenue gap from the capex spend expected in the next 6-18 months, it will probably be about US$110-120 annualised.

Shares: 560 mil
Net debt: US$125 mil (cash 175, gross debt 300)

Based on offer price of S$2.5, it is about 10x EV/EBITDA, based on earnings which are basically locked in, no future growth. Is it cheap cheap - certainly no. But I believe in fair price for a good company.

(28-05-2014, 10:47 AM)specuvestor Wrote:

(28-05-2014, 08:34 AM)nitro Wrote: Just to confirm using SOA method, once 75% in value of of the Shares held by Shareholders present approved, KRR can get it delisted by paying minority $2.50/share.

This is unlike the GO method, where the offerer needs to get >90% to get the company delisted?

If SOA fails, everything back to normal.

Just to clarify: I think SOA is used to privatised (not delist) a company with just 75% shareholders present and majority of headcounts are in agreement. That is reason why some choose SOA rather than the simple GO. That also means it is a "trick" used by the smaller companies.

As HitandRun pointed out, employees and whatever proxies will also come. I'm wondering why no one busted them like the case of PCCW or is SIC and SGX not aware?

(28-05-2014, 11:19 AM)cif5000 Wrote: If the Scheme is approved at the meeting (i.e. majority in numbers of shareholders AND 75% in number of shares), ALL shares will be acquired by the offeror at the offer price even for those who had earlier voted against the Scheme. 100%.

(28-05-2014, 11:33 AM)ghchua Wrote: Dear all,

I think you all misunderstood the Scheme of Arrangement. Under the scheme, once it is approved at the scheme meeting and no objection from the court, the scheme is effective and binding to all shareholders. All shareholders will have their shares acquired and the company will be delisted. There is no such thing as holding unlisted shares once the scheme is effective. KKR using this method meant that they either acquire all the shares of Goodpack or they end up with nothing if the scheme is not approved.

That's what I meant Privatise as in 100% owned. Delisting is a natural extention to being privatised but not the catalyst.

(28-05-2014, 11:20 AM)CityFarmer Wrote: Yes, the SOA is a mean to reorg capital structure of a company (privatisation), rather than to delist. However, at the end of day, it will be delisted, if the SOA went thru.

I wouldn't take it as "short-cut", but rather a variance in option for the offeror. For offeror opting for none or all, SOA is a better option than GO, but SOA is also easier to be voted down and subject to sanctioned by the court.

All shareholders are entitled to attend, and the limit of 2 proxies per shareholders is still there, IIRC. If it is a low ball offer, and minorities fail to vote it down, then who should be blamed?

(not vested)

SOA is meant to make the entity fully owned, reorg whatever is what the offeror claim They could be asset stripping whatever behind the curtains but I digress.

SOA is not going to be effective in the case of say CMA because minorities likely to have more hands than the major shareholder On the other hand (pun intended) small companies can organise a lot of "own people" turn out to overwhelm the minorities. In Neratel case they underestimated whereas Meiban was a simple walkover even though I dissented

^^ In a SOA, the number of shareholders counts. Not just majority in %. So it is a rather fair scheme where get a chance to veto the SOA.

Of course, a PCCW pattern can happen. Complain to SGX, MAS/SIC and ACRA if you think something is fishy. The attendance record is there.


As mentioned before, I saw a GLC EGM where loads of employees attended and voted in IPT resolution. I even took a photo of the queue. Chao kuan pattern all round.


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Count me in i will go vote down the SOA. This is the best little thing i can do. So the procedure is personally i need to go to a meeting and submit the offer letter to veto?

Actually i am not to optimistic it can be voted down. It reminded me the Cerebos incident whereas even lower ball price offered, but it still managed to garner up to 98% of shareholder to accept the offer. I not too sure Cerebos is delisted via SOA or not.

I guess nowadays shareholders are not planning to stick their gun to a company and hold long term. Many are short term or even arbitrage players.

Reading through the 21pages announcement, i noticed there is no clause saying "THE OFFEROR DOES NOT INTEND TO FURTHER REVISE THE REVISED OFFER PRICE
OF S$4.05 FOR EACH OFFER SHARE" which we always see in GO.

Is this clause not applicable on SOA or is there a chance that KKR will revise the price $2.50/share if 75% voted against it.

Also, what happens if some of my Goodpack shares are bought under CPF, how do i use them to vote?