Ossia International Limited

[money]

@¯|_(ツ)_/¯, i heard you own many delisted companies. Do you happen to have the latest annual report of Pertama?

[ghchua]

Hi ghchua, actually i valued the taiwan business at zero. But anyway, i thought it will be a lot better if minority shareholders can vote and choose their IFA. 

And i dont get the rationale that an associate has to be sold at a discount. The associate is VERY VERY PROFITABLE in the past few years, pays very good dividends. In fact, it is this strong dividend cashflow in the past few years that helps accumulate $11.3 million on the balance sheet as of mar 2024.

Hi money,

Ok, you have valued the Taiwan distribution business as zero. But you took the full net cash value of $9.5m from the balance sheet in your computation.

As for the associate, the reason for giving the discount was due to lack of control in the stake and also lack of marketability, with the associate being an unlisted entity.

[money]

hmm, i have no idea how much cash is on the taiwan side and the singapore side. But i would think most of the cash is on the singapore side, which can be paid out freely as dividend today.

[dreamybear]

A general comment on delisting. Sometimes i do wonder if fees is paid to the IFA, how independent can the IFA be? (i have heard warren buffett saying 'never ask a barber if you need a haircut')

Another issue is who gets to decide on which IFA to choose, this is another matter of great importance to the minority shareholder but never discussed. It will be nice if SGX can appoint the IFA instead.

There are some guidelines, hope they can be of some help to you.

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Regulator’s Column: What SGX RegCo expects of independent financial advisers for listed issuers
https://www.sgxgroup.com/media-centre/20...-financial

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

[dydx]

Obviously the Goh Brothers are trying to buy more shares via their unconditional offer at $0.145 - i.e. whatever minority shareholders tender, the Offeror will be happy to accept and take, WITHOUT CONDITION! - with the view to delist and then privatise the company, mainly because of the 19.76% effective stake in the large and well-established, growing and profitable Harvey Norman chain-store businesses in SG and M'sia held through the company's 40% shareholding in Harvey Norman
Ossia (Asia) Pte Ltd (HNO; an investment holding company), which holds a 49.4% in Pertama Holdings Pte Ltd (PH; itself also a holding company) which has 2 wholly-owned operating subsidiaries (Pertama Merchandising Pte Ltd in SG and Elitetrax Marketing Sdn Bhd in M'sia) conducting the businesses. ASX-listed Harvey Norman Holdings Ltd holds a 80.24% effective stake, via the remaining 60% shareholding in HNO and 50.6% shareholding in PH.

In Ossia's audited 31Mar24 B/S, its 40% shareholding in HNO is the single largest asset - 50.4% of total assets! - and is carried at $31.317m based on historical cost. There has been no attempt by the Goh Brothers as directors/management to provide any financial information on the operating businesses of Harvey Norman chain-store businesses in SG and M'sia. From Harvey Norman Holdings' publicly disclosed 1H (ended 31Dec23) results report (p14), we know Harvey Norman SG & M'sia posted a 1H revenue of AUD365.11m and pretax profit of AUD24.83m (AUD19.01m after brand licensing fees)... https://clients.weblink.com.au/news/pdf2/02779189.pdf Sadly, the IFA has totally neglected looking into the above information.

It is quite obvious that Ossia's 40% shareholding in HNO - and the underlying 19.76% effective interest in Harvey Norman chain-store businesses in SG and M'sia - is worth quite a lot more than its book value of $31.317m. It is also quite obvious that if approached, the listed Aussie parent should be amenable to buy the remaining 19.76% based on fair valuation, in order to make their SG and M'sia business operations 100% subsidiaries, bearing in mind the 2 companies - and Harvey Norman Holdings' founder/Chairman Gerry Harvey and Ossia's Chairman George Goh - have been partners for so many years. A sale of of the 19.76% effective interest in Harvey Norman chain-store businesses in SG and M'sia to Harvey Norman Holdings could well be in the Goh Brothers' plan for Ossia, and minority shareholders should clarify this in the coming AGM. If this is so, minority shareholders should not sell out at all, as a sale at say $47.0m cash - 1.5x BV - would bring in $0.186/share. Anyway, the GO at $0.145 doesn't make much sense, bearing in mind Ossia's 31Mar24 NAV/share is already at $0.219!!

The recent supplementary announcement by the Offeror on the Goh Brothers' willingness to forgo their entitlement of the $0.007/share final dividend on minority shareholders who tender in their shares for acceptance by 31Jul24 (the stated record date for the dividend) is just a trick to entice them to sell.... https://links.sgx.com/FileOpen/Supplemen...eID=809802

While some may look at it as like a price increase, we should bear in mind that the $0.007/share dividend is from the company, and rightfully already an entitlement for all shareholders. Therefore, for minority shareholders who don't intend to accept the GO at $0.145, they should be indifferent, as it is not an increase in offer price.

[weijian]

The offeree circular is released last night. i took a quick look. It turns out to say that the opinion is fair and reasonable. i thought it is ridiculous.

At of mar 2024, the company has net cash of at least 9.5m (cash 11.3m, debt 1.77m). 

Although its taiwan business is PROFITABLE, i will just liquidate all the inventories and trade receivables (17.7m) to pay down all the liabilities (6.8m) to simplify matters. Value the taiwan business at zero.

Let's just focus on the 19.8% effective stake in Pertama Holdings. The group's share of profit for 2024 is 5,065k (2023:7,883k).

Even if i take a miserable pe multiple of 8, and i use the lower figure of 5,065k, i get a valuation of 40,520k or simply 40m.

Add this to the net cash of 9.5m, i get 49.5m. With 252m shares outstanding, this works out to 19.6 cents per share (compared to the 15.2 cents on offer if you include the dividend). 

How is this offer fair and reasonable?

How CAN this offer be FAIR and REASONABLE? Come on lah!!!

Hi money,

Your frustration is understood if we see things from the lenses of theory. But in practice, we have to discard theory and accept practice. I do think it is undervalued but as OPMIs, we are price takers and have to accept the various handicaps. Unfortunately, i have to quote the late Munger here - Accept reality for what it is, especially when you don't like it.

Valuation is an art - so it is been practiced to its boundaries.  For example, it is really convenient for the IFA to use "first quantile" as a benchmark. For those not well-versed in statistics, median is second quantile and obviously a bigger number than first quantile. In statistics, first quantile is used to visualize/calculate outliers, not for benchmarking.

Next for the 19.8% profitable associate. IFA correctly points out that in theory, almost no party will buy a minority stake at BV. But in practice, the majority owner of the associate will more often than not, be willing to pay BV (or higher) to buy out its minority owner (not OPMIs) to increase its own EPS.

So what should OPMIs do? For a start, the Gohs have not said that the current price is final. IFA has deemed the offer to be fair/reasonable, removing the absolute show-stopper to prevent them from delisting the company. OPMIs still have plenty of time to accept the offer if company is suspended (free float<90%), or wait for compulsory acquisition if they managed to trigger it.

P.S. Not vested in Ossia International but learning about such M&A in practice.

[weijian]

A general comment on delisting. Sometimes i do wonder if fees is paid to the IFA, how independent can the IFA be? (i have heard warren buffett saying 'never ask a barber if you need a haircut')

Another issue is who gets to decide on which IFA to choose, this is another matter of great importance to the minority shareholder but never discussed. It will be nice if SGX can appoint the IFA instead.

Hi money,

The BOD of the target appoints the IFA. If the offerer is part of the BOD, they "recluse" themselves and let the independent director/s take the lead in this. Of course, each independent director's mileage may vary.

On your proposal of SGX appointing the IFA, it is not new. But if that happens, then other vested parties can also argue SGX has a bias too - SGX earns fees from the on-going listing and trading of the companies themselves and so have every incentive not to delist the company. IIRC, some parties have mentioned a government board overseeing the IFA appointment but I believe it has its cons as well.

So end of the day, the interest of the offerer (generally the majority shareholder) and minorities will never be aligned since they are on different side of the trade. As such, a balanced approach is probably the best. When odds sway too much to one side, the Regulator is obliged to step in to reverse it, but never totally sway it to the other side.

[dydx]

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.

[ghchua]

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%.

Hi dydx,

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.

However, if more than 90% of the independent shareholders accepted the offer, then its game over as compulsory acquisition kicks in.

Hope that the above clarifies.

[dydx]

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%.

Hi dydx,

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.

However, if more than 90% of the independent shareholders accepted the offer, then its game over as compulsory acquisition kicks in.

Hope that the above clarifies.

Thanks, and I know all that. 90% is the Gohs' first target which would trigger suspension, which usually would lead to more acceptances from the remaining minorities. Don't forget this is an unconditional GO.