Ossia International Limited

[dreamybear]

90% is not the target. 90% is only for listing requirements in order to maintain free float and prevent suspension.

Even if they reaches 90%, they will not be able to delist even with a "Fair and Reasonable" opinion from the IFA as they need 75% of independent shareholders to accept the offer for them for them to delist. Otherwise, the stock will be suspended due to insufficient free float but remain listed.

Speaking of which, i wonder about the timing, i.e. why offer now instead of before the changes to the compulsory acquisition requirements take place(I think last year ?) ? Wldn't it be easier for the offeror ?

I wld imagine such a corporate action wld have been in consideration for some time already ? Could it be funding issues, the share price, or ???

[money]

Hi money,
Do note $0.145 is just the first salvo. The Gohs' position now (as at 10Jul) is at 76.9%. Depending on acceptances by minority shareholders, the Gohs may have to raise their offer later in order to reach 90%.

The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  The fact that they didn't include or look into the publicly available financial and other information of the Harvey Norman SG & M'sia operations is a serious cause for concern to me.

Hi dydx, 

Thumbs up to this:
" The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  "

Quite interesting information on the background information. When millions of dollars are involved in an offer and you get IFA made advice to independent directors who then advice minority shareholders and there is no detailed discussion of Pertama Holdings and its profitability, i wonder what is going on. 

When something important and relevant isnt discussed in detail, how do minority shareholders get the whole picture to make a fair and reasonable decision?

[weijian]

Hi money,
Do note $0.145 is just the first salvo. The Gohs' position now (as at 10Jul) is at 76.9%. Depending on acceptances by minority shareholders, the Gohs may have to raise their offer later in order to reach 90%.

The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  The fact that they didn't include or look into the publicly available financial and other information of the Harvey Norman SG & M'sia operations is a serious cause for concern to me.

Hi dydx, 

Thumbs up to this:
" The IFA opinion should be taken with a pinch of salt, as Asian Corporate Advisors is a small firm with just 2 professionals listed... https://regco.sgx.com/catalist-sponsors/...rs-pte-ltd  "

Quite interesting information on the background information. When millions of dollars are involved in an offer and you get IFA made advice to independent directors who then advice minority shareholders and there is no detailed discussion of Pertama Holdings and its profitability, i wonder what is going on. 

When something important and relevant isnt discussed in detail, how do minority shareholders get the whole picture to make a fair and reasonable decision?

ACA probably qualified on paper, so there is nothing wrong with appointing them. As usual, there is a difference between theory and practice.

While there are some norms practiced by IFAs, for example using comparable companies' P/E, EBITDA/EV or RNAV as references to derive a statistic, but there are big discretions in the choosing of the statistic and methodology.

For example, ACA here decided to use first quantile as the statistic.

Let's contrast that to GEH BOD appointing E&Y Corp Finance as their IFA, in which the latter eventually gave a "not fair" opinion. To recap, OCBC's offer valued GEH at ~0.7x EV. Similarly, E&Y Corp Finance looked at comparable companies to derive the average P/EV market values. However, in this particular case, they derived two P/EV ratios of 0.7 and 0.8, based on LTM (last 12 months) and LTY (last 10 years). Eventually, E&Y Corp Finance justified taking 0.8. In an alternate scenario where they had used 0.7, would be quite different now.

So why did E&Y Corp Finance decide to justify using LTY over LTM? Is reputation more important than the fees? Maybe.

Would Ossia appoint E&Y Corp Finance? Probably not if the fees are too high. And especially plenty of smaller outfits interested in earning their fees.

[ghchua]

While there are some norms practiced by IFAs, for example using comparable companies' P/E, EBITDA/EV or RNAV as references to derive a statistic, but there are big discretions in the choosing of the statistic and methodology.

For example, ACA here decided to use first quantile as the statistic.

Hi weijian,

I have came across IFA which uses relative stock market PE valuation to adjust those statistics to compute estimated range of value for the stock. Since our STI would normally trade at a lower PE ratio than US, Taiwan or even Malaysia stock indexes, this adjustment meant that the adjusted numbers are as bad (if not worse) than the first quartile numbers that ACA had used for Ossia.

So different IFAs have their own in-house methodology in computing those numbers. But the main issue is that - Is our companies too small and our stock market too weak to justify taking those adjustments, when comparing with companies in similar sector trading in different markets? Food for thought.

[weijian]

So different IFAs have their own in-house methodology in computing those numbers. But the main issue is that - Is our companies too small and our stock market too weak to justify taking those adjustments, when comparing with companies in similar sector trading in different markets? Food for thought.

Hi ghchua,

I have been thinking about your observation too. It seems to me that this is just another demonstration of market reflexivity. Cheap market valuations can make every participant worst off (whether is it investors OR the companies' performance). What i mean is - market valuations are a reflection (effect) of companies' performance (cause). But at a certain point, the "effect" can influence on the "cause".

For example, a company with poor efficiency (low ROIC and ROE) will probably result in low share price. The low share price discourages talented employees to stay on as their share options (if there are any) will not be very rewarding. A low share price will encourage the controlling shareholder to monetize their efforts via large salaries OR an eventual goal to squeeze out minorities. All of these will affect the company's performance negatively.

The Singapore market is small, no doubt about that, although I always argue that it has always been punching above its weight. So I think there are still enough outliers. If there are not enough outliers, then one has to make the decision whether to wait for more fish in the pond, or consider neighboring lakes. After all, the fishing skills we learnt ourselves, stay with us and is transferrable.

[weijian]

LPPL I suppose. But that's how the game is.

RESPONSES TO SGX-ST'S CLARIFICATIONS

Question: What is the rationale and relevant factors that the IFA took into consideration to decide on examining the premium/(discount) of the Offer Price of successful privatisation transactions which were announced and completed from 1 January 2021? Did the IFA take into consideration that the privatization transactions from 1 January 2021 to 31 December 2022 would potentially be affected by the Covid-19 pandemic?

IFA’s Response:
In making comparison against the successful privatisations, we note that, inter alia, the sample size chosen should not be too small. It is commonly accepted that the larger the sample size, the more accurate the median/average values will be.

The precedent privatisation transactions as illustrated in the IFA Letter would have incorporated historical transactions prior to the relevant announcement date of the offers, and the relevant analysis for these precedent privatisation transactions would have captured the then prevailing market sentiments. Thus, the premiums/(discounts) reflected in such datasets would capture, inter alia, premiums for period prior to, during, and after Covid-19 pandemic.

https://links.sgx.com/FileOpen/Responses...eID=816845

[dreamybear]

Hi weijian,

I have came across IFA which uses relative stock market PE valuation to adjust those statistics to compute estimated range of value for the stock. Since our STI would normally trade at a lower PE ratio than US, Taiwan or even Malaysia stock indexes, this adjustment meant that the adjusted numbers are as bad (if not worse) than the first quartile numbers that ACA had used for Ossia.

So different IFAs have their own in-house methodology in computing those numbers. But the main issue is that - Is our companies too small and our stock market too weak to justify taking those adjustments, when comparing with companies in similar sector trading in different markets? Food for thought.

https://www.valuebuddies.com/thread-6288...#pid169194
"Then there is the Structure layer that separates business cashflow to OPMI cashflow. They are not the same. And it is decided by the major shareholders/ board rather than OPMI while the underlying business hums along. This is the part that I find Buffett didn't address enough. His famous story of taking over Berkshire because of $0.125 made him the controlling shareholder, or the capacity to do so like vulture funds nowadays. There is a difference"

With utmost respect to specuvestor who gave us the ABS theory, for me personally, I had adapted it to ABSE where E refers to external factors such as different geographical stock markets/regulatory landscape/liquidity, etc , geopolitical tensions, etc.      

Using the topic below as an example - comparing MY FH vs SG leasehold : is it considered "market mispricing" or simply market pricing ?
https://dividendpassiveincome.blogspot.c...about.html

[yjingfa]

I have been investing in SG stock market for nearly 30 years and I have been in the financial industry as an analyst, fund manager and CIO for more than a decade. I have yet to come across an IFA recommendation as ridiculous as Ossia's. I have a friend who knows the IFA people , so I only comment on their recommendation now (after much consideration).

(A) Ossia's NAV = $0.22 (Mar 2024). As any investment banker knows, NAV is one of the metrics to consider as evaluate the reasonableness & fairness of an offer. The offer price of $0.145 is at a discount of 34% from NAV

(B) The offer price is barely 20% over the last traded price of $0.12. Considering that it is an illiquid and low-price counter, any price increase over the last traded price will look large in percentage term. And if 20% premium is considered substantial by the IFA, then GE and Second Chance's offer price premium of 39-42% over last traded price are considered... astronomical? Isetan's offer price premium of 173% must be hyper-astronomical?

© Harvey Norman Australia trades at PER 16x, above NAV with a market cap of $6bn. Courts (2019) , Challenger (2019, 2023) and Pertama (1999, 2011, 2013) were acquired/delisted from SGX in the respective years (in brackets). The offer for Courts (a net debt company) were deemed Fair but not reasonable by the IFA (KPMG) because the offer price was below NAV (PER 12x). Challenger (net cash but only operating in Singapore) were delisted at an offer price of $0.60, 1.x NAV at PER 13x in 2023 after a failed attempt in 2019 (offer price of $0.56 , 1.x NAV, PER 10x). Pertama itself were delisted at similar valuation metrics over a few attempts. In comparison, the offer price for Ossia (net cash) is at PER 4-5x and more than 30% below NAV. Moreover, the assets of Ossia (NAV) should be worth more than that of those peers because of its stake in Harvey Norman (see below).

(D) Ossia has a 40% stake in Harvey Norman Ossia Asia (HNOA) which owns 49.4% in Pertama Holdings. The value of Ossia's stake in Harvey Norman cannot be simply reduced to a PE muliple of Pertama Holdings' earnings which itself has substantial cash holdings (based on Pertama Holdings' accounts as at 30 June 2023). Currently, Harvey Norman's operations in Malaysia and Singapore are carried out though Pertama Holdings which Ossia has an effective stake of 19.8%. The IFA was right to point out that HNOA has no principal activity but is there any agreement between Ossia and Harvey Norman Australia that any expansion to Asian countries outside Malaysia and Singapore will be carried out through HNOA? If there is, and Harvey Norman were to expand to Indonesia, the Philippines or China, then Ossia's stake in these businesses will be 40% and not 19.8%.

(E) Harvey Norman Australia has pitched Asia (esp. Malaysia) to investors as one its most exciting growth markets. This is not just in 2023 Annual report (as pointed out by SGX) but also in a presentation to investors in 2022. Malaysia is one of few economies in the world in 2024 where local consumption is still going strong. So is Taiwan where Ossia's Great Alps' operations are carried out. Only in Singapore, consumption looks sluggish despite all the vouchers that has been distributed out by the government this year (based on Singstat Retail Sales data and information gleaned from retail REITS' presentation to investors).

Some of the above arguments are forward-looking and valuation of a business is always tricky with a wide range of fair values deemed reasonable. Nonetheless, the above hard-to-refute arguments does call into question the sanity of the IFA's recommendation. It is sad to see that it has taken SGX so long to seek clarification from Ossia on this matter. Despite the IFA report being issued on 16 July, SGX apparently only queried Ossia on 19 August, way almost two weeks after the first offer closing date (8 August). Had the acceptances been forthcoming fast and offer closed on 8 August, SGX's query would be too little too late! It might still be. We have to wait and see!

[dreamybear]

I have been investing in SG stock marker for nearly 30 years and I have been in the financial industry as an analyst, fund manager and CIO for more than a decade. I have yet to come across an IFA recommendation as ridiculous as Ossia's. I have a friend who knows the IFA people , so I only comment on their recommendation now (after much consideration).

(A) Ossia's NAV = $0.22 (Mar 2024).  As any investment banker knows, NAV is one of the metrics to consider as evaluate the reasonableness & fairness of an offer. The offer price of $0.145 is at a discount of 34% from NAV

(B) The offer price is barely 20% over the last traded price of $0.12. Considering that  it is an illiquid and low-price counter, any price increase over the last traded price will look large in percentage term. And if 20% premium is considered substantial, by the IFA, then GE and Second Chance's offer premium of 39-42% over last traded price are considered... astronomical? Isetan's offer premium of 173% must be hyper-astronomical?

© Harvey Norman Australia trades at PER 16x, above NAV with a market cap of $6bn.  Courts (2019) , Challenger (2019, 2023) and Pertama (1999, 2011, 2013) were acquired/delisted from SGX in the respective years (in brackets). The offer for Courts (a net debt ) were deemed Fair but not reasonable by the IFA (KPMG) because the offer price was below NAV (PER 12x). Challenger (net cash) were delisted at above NAV and PER (13x). Pertama itself were delisted at similar valuation metrics over a few attempts. In comparison, the offer price for Ossia (net cash) is at PER 4-5x and below more than 30% below NAV. Moreover, the assets of Ossia (NAV) should be worth more than that of those peers because of its stake in Harvey Norman (see below).

© Ossia has a 40% stake in Harvey Norman Ossia Asia (HNOA) which owns 49.4% in Pertama Holdings. The value of Ossia's stake in Harvey Norman cannot be simply reduced to a PE muliple of Pertama Holdings' earnings which itself has substantial cash holdings (based on Pertama Holdings' accounts as at 30 June 2023). Currently, Harvey Norman's operations in Malaysia and Singapore are carried out though Pertama Holdings which Ossia has an effective stake of 19.8%. The IFA was right to point out that HNOA has no principal activity but is there any agreement between Ossia and Harvey Norman Australia that any expansion to Asian countries outside Malaysia and Singapore will be carried out through HNOA? If there is, and Harvey Norman were to expand to Indonesia, the Philippines or China, then Ossia's stake in these businesses will be 40% and not 19.8%.

(D) Harvey Norman Australia has pitched Asia (esp. Malaysia) to investors as one its most exciting growth markets. This is not just in 2023 Annual report (as pointed out by SGX) but also in a presentation to investors in 2022. Malaysia is one of few economies in the world in 2024 where local consumption is still going strong. So is Taiwan where Ossia's Great Alps' operations are carried out. Only in Singapore, consumption looks sluggish despite all the vouchers that has been distributed out by the government this year (based on Singstat Retail Sales data and information gleaned from retail REITS' presentation to investors).

Some of the above arguments are forward-looking and valuation of a business is always tricky with a wide range of fair values deemed reasonable. Nonetheless, the above hard-to-refute arguments  does call into question the sanity of the IFA's recommendation. It is sad to see that it has taken SGX so long to seek clarification from Ossia on this matter.  Despite the IFA report being issued on 16 July, SGX apparently only queried Ossia on 19 August, way almost two weeks after the first offer closing date (8 August). Had the acceptances been forthcoming fast and offer closed on 8 August, SGX's query would be too little too late! It might still be. We have to wait and see!

Thanks for sharing the detailed comments. I think there are some guidelines for IFA.

Perhaps it can be a good idea for OPMIs (especially those with knowledge in this area) to put their heads together to feedback ?

-----------------

PRACTICE STATEMENT ON THE OPINION ISSUED BY AN INDEPENDENT FINANCIAL ADVISER IN RELATION TO OFFERS, WHITEWASH WAIVERS AND DISPOSAL OF ASSETS UNDER THE SINGAPORE CODE ON TAKE-OVERS AND MERGERS (THE “CODE”)
https://www.mas.gov.sg/-/media/mas/resou...-clean.pdf

Guidelines on Independent Financial Advisers
https://api2.sgx.com/sites/default/files...nal%29.pdf

https://www.sgxgroup.com/media-centre/20...-financial

https://www.acra.gov.sg/accountancy/prof...-resources

[yjingfa]

I have been investing in SG stock marker for nearly 30 years and I have been in the financial industry as an analyst, fund manager and CIO for more than a decade. I have yet to come across an IFA recommendation as ridiculous as Ossia's. I have a friend who knows the IFA people , so I only comment on their recommendation now (after much consideration).

(A) Ossia's NAV = $0.22 (Mar 2024).  As any investment banker knows, NAV is one of the metrics to consider as evaluate the reasonableness & fairness of an offer. The offer price of $0.145 is at a discount of 34% from NAV

(B) The offer price is barely 20% over the last traded price of $0.12. Considering that  it is an illiquid and low-price counter, any price increase over the last traded price will look large in percentage term. And if 20% premium is considered substantial, by the IFA, then GE and Second Chance's offer premium of 39-42% over last traded price are considered... astronomical? Isetan's offer premium of 173% must be hyper-astronomical?

© Harvey Norman Australia trades at PER 16x, above NAV with a market cap of $6bn.  Courts (2019) , Challenger (2019, 2023) and Pertama (1999, 2011, 2013) were acquired/delisted from SGX in the respective years (in brackets). The offer for Courts (a net debt ) were deemed Fair but not reasonable by the IFA (KPMG) because the offer price was below NAV (PER 12x). Challenger (net cash) were delisted at above NAV and PER (13x). Pertama itself were delisted at similar valuation metrics over a few attempts. In comparison, the offer price for Ossia (net cash) is at PER 4-5x and below more than 30% below NAV. Moreover, the assets of Ossia (NAV) should be worth more than that of those peers because of its stake in Harvey Norman (see below).

© Ossia has a 40% stake in Harvey Norman Ossia Asia (HNOA) which owns 49.4% in Pertama Holdings. The value of Ossia's stake in Harvey Norman cannot be simply reduced to a PE muliple of Pertama Holdings' earnings which itself has substantial cash holdings (based on Pertama Holdings' accounts as at 30 June 2023). Currently, Harvey Norman's operations in Malaysia and Singapore are carried out though Pertama Holdings which Ossia has an effective stake of 19.8%. The IFA was right to point out that HNOA has no principal activity but is there any agreement between Ossia and Harvey Norman Australia that any expansion to Asian countries outside Malaysia and Singapore will be carried out through HNOA? If there is, and Harvey Norman were to expand to Indonesia, the Philippines or China, then Ossia's stake in these businesses will be 40% and not 19.8%.

(D) Harvey Norman Australia has pitched Asia (esp. Malaysia) to investors as one its most exciting growth markets. This is not just in 2023 Annual report (as pointed out by SGX) but also in a presentation to investors in 2022. Malaysia is one of few economies in the world in 2024 where local consumption is still going strong. So is Taiwan where Ossia's Great Alps' operations are carried out. Only in Singapore, consumption looks sluggish despite all the vouchers that has been distributed out by the government this year (based on Singstat Retail Sales data and information gleaned from retail REITS' presentation to investors).

Some of the above arguments are forward-looking and valuation of a business is always tricky with a wide range of fair values deemed reasonable. Nonetheless, the above hard-to-refute arguments  does call into question the sanity of the IFA's recommendation. It is sad to see that it has taken SGX so long to seek clarification from Ossia on this matter.  Despite the IFA report being issued on 16 July, SGX apparently only queried Ossia on 19 August, way almost two weeks after the first offer closing date (8 August). Had the acceptances been forthcoming fast and offer closed on 8 August, SGX's query would be too little too late! It might still be. We have to wait and see!

Thanks for sharing the detailed comments. I think there are some guidelines for IFA.

Perhaps it can be a good idea for OPMIs (especially those with knowledge in this area) to put their heads together to feedback ?

-----------------

PRACTICE STATEMENT ON THE OPINION ISSUED BY AN INDEPENDENT FINANCIAL ADVISER IN RELATION TO OFFERS, WHITEWASH WAIVERS AND DISPOSAL OF ASSETS UNDER THE SINGAPORE CODE ON TAKE-OVERS AND MERGERS (THE “CODE”)
https://www.mas.gov.sg/-/media/mas/resou...-clean.pdf

Guidelines on Independent Financial Advisers
https://api2.sgx.com/sites/default/files...nal%29.pdf

https://www.sgxgroup.com/media-centre/20...-financial

https://www.acra.gov.sg/accountancy/prof...-resources

Let's see if if there is any follow-up from SGX because the offeror's stake is at 85.9% and there is one more day before offer closes. In the meantime, check out Harvey Norman Australia's investors' presentation to see how important the Asian market is to them!