SMB United -- takeover bid by Boer

[portuser]

In the press release yesterday, SMB Board stated the following:
“The Boer Offer price does not appear to reflect any control premium for SMB, does not recognise the contribution of EDMI Limited (“EDMI”) as a wholly-owned subsidiary and does not appear to reflect the earnings and growth profile of SMB where EDMI contributed approximately 70% of the SMB Group’s earnings before interest and tax and EMDI’s results.”

To investors who surrendered their EDMI shares to SMB in June, this spirited response leaves a bad taste in the mouth.
SMB valued EDMI below $80m with its offer (announced on 28 Mar) of 36c. Boer is now valuing SMB at around $150m. Since EDMI has contributed around 70% of SMB Group's earnings, Boer would have imputed around $100m as the worth of EDMI. If SMB Board thinks $100m is inadequate, then its own $80m is even more undeserved.
Anyway, those who believe in EDMI being able ride on the strong tide of smart metering and bought SMB shares with the proceeds from their tendered EDMI shares should be relieved to know that with the stand taken by SMB Board, Boer may not succeed in taking over a good Singapore company.

[dzwm87]

Just to summarise the entire offer by Boer (for my easy reference too )

1.Offer Price: S$0.32 per share (cash offer)

2.First Closing Date: 5:30pm 19 December 2011

3.Second Closing Date - Only if Offer is extended:
(If Conditional) Boer to state next Closing Date
(If Unconditional) Need not state next Closing Date but Boer to give Shareholders who have not accepted the offer at least 14 days'prior notice before Offer is closed

If the Offer is revised, it will remain open for at least 14 days from the date of new notice

4.Conditions of Offer:
i. No Share Issue Condition - SMB Utd can't issue new shares.
*SMB, however, did issue new shares to purchase remaining stakes in Quantum Automation but Boer has chosen to waive away the condition for this.

ii. Acceptance Condition - By the Closing Date, at least 52.5% of voting rights shares to accept the offer. This actually amounts to approximately 252m shares. The shares in consideration for this condition excludes those taken into account for PSP and Quantum's acquisition.

**From the first notice of acquisition till 1 Dec, 68,627,000 volume of shares have been traded at largely 0.315. This means possibly that the buyers for the above shares might want to arbitrage on the .5c spread. However, it is still quite far from the 252m requirement. It depends a lot on the other shareholders.

iii. Boer's Shareholders' Approval Condition - Boer's shareholders must agree to the acquisition. (Which is more or less settled given the irrevocable undertaking by King Able Ltd - 67%)

---

From the looks of it, it's quite unlikely that we will see any external party bidding for SMB Utd.

And only possibility for an increased bid will be from Boer itself. I factored in a scenario test and looked at the possibility of an increased bid affecting it net gearing.

Current scenario: At 0.32, Boer went from Net Cash position to 2.33% net gearing

Supposed bid up to 0.40: it will represent a 45% premium from SMB's last traded price but Boer's net gearing will jump to 13%; a position which I doubt they will take

Supposed bid up to 0.35: 27% premium with 6% net gearing - quite possible

Supposed bid up to 0.38: 38% premium but with 10% net gearing - possible if Boer is aggressive

Overall, it is possible for Boer to up its bid but its upside might not be that high. From the looks of it, if the bid was to fail, there is a higher likelihood that SMB price will drop. Yes, SMB might be undervalued at 0.32 based on its management but given current situation, EDMI's potential might still take a fair bit to be realised. Might be better to sell a portion of SMB at 0.32 and invest that premium gained on other opportunities. In future when SMB price falls (subjected to a failed bid), there is an opportunity to increase your position in it.

[portuser]

DZWM87
Centaraus has increased its stake in SMB to above 6%.
Do you think it is going to throw its weight behind the controlling shareholders?

[dzwm87]

IMO, it's hard to speculate but drawing back from another case of Centaurus's M&A risk arbitrage, Demag Cranes.

In Feb 2011, Centaurus, at around 5.05% stake of Demag then, did pushed for a merger proposal between Demag, a German crane manufacturer, and Finnish peer Konecranes. However, Demag management rejected the push. Later in Jun 2011, Terex offered to acquire Demag but at a very undervalued offer which both Centaurus and Demag management rejected. Demag management however was open for further negotiations and soon enough, Terex offered a higher bid at around 50+% premium to Demag's last "undisturbed" share price. As of latest shareholder's listing, Terex is the largest shareholder at around 80+% stake while Centaurus has ceased to be a SSH - suspected to have sold their stake.

Bottom line: Centaurus can throw its weight behind the controlling shareholders but 6% is still 6%. SMB management has 20+% and 6% isn't going to do much. The above case study is after all, one of many other Centaurus' risk arbitrage exposure. Given the nature of diversification, there is also a likelihood that SMB case will not reflect to be the same of Demag. However, that being said, Centaurus' up bid to above 6% took place on 5 Dec while SMB's Circular to reject the offer comes in on 2 Dec - perhaps Centaurus strongly believe Boer or somebody else might up the offer?

---

Bid queue now at 0.32

[freedom]

bid queue now at 0.32 probably because Boer had shareholder approval yesterday.

starting from today, Boer will officially buy shares of SMB in the open market at offer price.

so don't read too much about bid @0.32

[portuser]

The controlling shareholders and several other shareholders hold 38% of SMB shares. They undertook to vote in favour of SMB's offer to acquire 100% of EDMI (page 6 of exit letter dated 3 June 2011 by SMB).
Boer's may not succeed if Centaurus is friendly to the controlling shareholders.

[dydx]

As at 5 p.m. Today (19Dec11), Boer Power has managed to secure only approx. 20.57% of SMB.....
http://info.sgx.com/webcorannc.nsf/Annou...endocument

It is quite clear that unless Boer Power raises its current GO price of $0.32/share by a substantial amount, it is most unlikely that the company will be able to secure enough acceptances from SMB's remaining monority shareholders to reach the target of 52.5% by the extended "Final Closing Date" of 5.30 p.m. on 20Jan12.

[dzwm87]

20.57% is quite an encouraging % for Boer to up its offer..

[portuser]

It is strange that Boer has not bought any SMB share in the open market. In other takeover bids, did suitors stay clear and just wait for tendered shares?
Buying in the open market will help Boer in realising its goal of gaining control of SMB; yet it has not done so, any idea why?

[portuser]

Is Boer's position one of "all-or-nothing"?
It does not want to end up holding a minority stake, and hence is not buying in the open market. It can return all tenders shares if the number does not enable it to gain control of SMB.