Penguin International

[xlandjy]

Personally, I think they just want control (hence the conditional offer). And they want to do it as cheaply as possible (hence the low-ball offer). This is also why a revision of the offer is not going to happen. 

Hi lonewolf,

The condition of 50% or more acceptance is imposed by the takeover code of the Companies Act. Like it or not, when one makes any general offer, the condition will be there.

The offeror had already stated their intention is to make the company its wholly owned subsidiary and does not intend to preserve the listing status of the company. I think this statement is quite clear. Unlike the Lum Chang case study (which I have debated with dydx earlier in this topic), the offeror wants 100% of Penguin and delist the company from SGX.

Now there is an interesting twist here. The offer is deemed "not fair but reasonable" by the IFA. What does it mean? It means that the only way now for the offeror to force delisting is via compulsory acquisition under Section 215(1) of the Companies Act. They cannot use loss of free float as a reason for delisting since under new rule from SGX Regco, all applications for delisting must be deemed "fair and reasonable" by IFA and they have received acceptance of at least 75% of independent shareholders at the close of the offer.

The IFA opinion had closed one of the route whereby they can delist the company. I agree with dydx here, the chances of a higher revised offer is high if the offeror wants to gather higher acceptance to achieve its aim.

According to Cambridge Dictionary, 'fair' is "treating someone in a way that is right or reasonable...".  It is, therefore, that the Offer which is "not fair" cannot be reasonable.

In fact, the IFA and many of other IFAs  are talking rubbish.   there is no such thing as "NOT FAIR BUT REASOSNABLE".

[brattzz]

Personally, I think they just want control (hence the conditional offer). And they want to do it as cheaply as possible (hence the low-ball offer). This is also why a revision of the offer is not going to happen. 

Hi lonewolf,

The condition of 50% or more acceptance is imposed by the takeover code of the Companies Act. Like it or not, when one makes any general offer, the condition will be there.

The offeror had already stated their intention is to make the company its wholly owned subsidiary and does not intend to preserve the listing status of the company. I think this statement is quite clear. Unlike the Lum Chang case study (which I have debated with dydx earlier in this topic), the offeror wants 100% of Penguin and delist the company from SGX.

Now there is an interesting twist here. The offer is deemed "not fair but reasonable" by the IFA. What does it mean? It means that the only way now for the offeror to force delisting is via compulsory acquisition under Section 215(1) of the Companies Act. They cannot use loss of free float as a reason for delisting since under new rule from SGX Regco, all applications for delisting must be deemed "fair and reasonable" by IFA and they have received acceptance of at least 75% of independent shareholders at the close of the offer.

The IFA opinion had closed one of the route whereby they can delist the company. I agree with dydx here, the chances of a higher revised offer is high if the offeror wants to gather higher acceptance to achieve its aim.

According to Cambridge Dictionary, 'fair' is "treating someone in a way that is right or reasonable...".  It is, therefore, that the Offer which is "not fair" cannot be reasonable.

In fact, the IFA and many of other IFAs  are talking rubbish.   there is no such thing as "NOT FAIR BUT REASOSNABLE".

[ghchua]

According to Cambridge Dictionary, 'fair' is "treating someone in a way that is right or reasonable...".  It is, therefore, that the Offer which is "not fair" cannot be reasonable.

Hi xlandjy,

We are not debating English here. IFA opinions are in line with the practice code issued by SIC (which is under MAS) and not following dictionary definitions. Please refer to the link below and I re-produce the relevant section here:
https://www.mas.gov.sg/-/media/MAS/resou...282E443146

Fair and Reasonable Opinion
Take-over offers
3 When advising the board of the offeree company on an offer, the IFA
should conclude clearly and unequivocally in its advice whether an offer is
“fair and reasonable”. The term “fair and reasonable” should be regarded as
comprising two different concepts.
2
4 The term “fair” relates to an opinion on the value of the offer price or
consideration compared against the value of the securities subject to the
offer (the “Offeree Securities”). An offer is “fair” if the price offered is equal
to or greater than the value of the Offeree Securities.
5 In considering whether an offer is “reasonable”, the IFA should
consider other matters as well as the value of the Offeree Securities. Such
matters include, but are not limited to, the existing voting rights in the offeree
company held by the offeror and its concert parties and the market liquidity
of the Offeree Securities.
6 Under this approach, an offer can be “fair and reasonable”, “not fair
but reasonable”, “not fair and not reasonable” or “fair but not reasonable”.
In all cases, the IFA must explain clearly the bases for its conclusion. While
the opinion “fair but not reasonable” is not ruled out, an offer would normally
be considered “reasonable” if it is assessed to be “fair”. Hence, an opinion
that an offer is “fair but not reasonable” should not be given unless there are
strong and exceptional grounds.
Not fair but reasonable
7 Where the IFA concludes that an offer is “not fair but reasonable”, it
should be on the basis that the IFA is of the view that despite the offer being
“not fair”, the offer is “reasonable” after taking into consideration other
matters as well as the value of the Offeree Securities. Consequently, if the
IFA is to make a recommendation on whether to accept or reject the offer,
the recommendation in such cases would be to accept the offer.

[brattzz]

"NOT FAIR BUT REASONABLE" means,

An offer is “ NOT fair” if the price offered is LESS than the value of the Offeree Securities.

An offer is “reasonable”, the IFA consider other matters as well as the value of the Offeree Securities. Such
matters include, but are not limited to, the existing voting rights in the offeree company held by the offeror and its concert parties and the market liquidity of the Offeree Securities.

OK, very clear!

[dydx]

IFA's opinion too complicated! My friend's wife (who had read the entire IFA opinion) said this : If the price offered not fair or good enough, sell for what, unless you need money now. Wisdom made simple!

[ghchua]

IFA's opinion too complicated! My friend's wife (who had read the entire IFA opinion) said this : If the price offered not fair or good enough, sell for what, unless you need money now. Wisdom made simple!

Hi dydx,

If you refer to the practice code issued by SIC for IFA opinions as re-produced by me above, if the IFA concludes that the offer is deemed "not fair but reasonable" (as in Penguin case), the recommendation would be to accept the offer.

The opinion here is not complicated. IFA had given the opinion that the offer is not fair as deemed by your friend's wife. Both opinions are similar. Their conclusion though, are different. But one cannot blame the IFA for recommending accepting the offer because that is what the practice code says. If the IFA does not follow the practice code, I don't know what will be the implications. Will they lose their IFA license?

What I am trying to say here is that a lot of the posts here are directed at IFAs. But as I have said here, they are just following the practice code.

[dydx]

Hi ghchua,
I really wish you would not try so hard to quote the rules book here. As the appointed IFA, PrimePartners, despite having a decent market reputation, IMHO, has behaved like a 'two-hand' IFA in this instance, by having given their summary opinion on the Offer as "not fair but reasonable". That I am very sure is confusing to many minority shareholders. This has been picked up by some media as well.

The simple fact is that the Offeror has disturbed the minority shareholders by having made the formal offer to try to buy all the Penguin shares from them at $0.65/share. Concurrently, the Offeror has been actively mopping up from the market all the Penguin shares being sold by minority shareholders who need cash and feel that $0.65/share is good enough for them. Minority shareholders and market observers can easily understand the Offeror's great eagerness to buy up Penguin shares by using this 2-pronged approach.

Notwithstanding the IFA's opinion and the follow-through recommendation by the IDs, individual minority shareholders must decide for themselves - based on their own financial interests, investment and other objectives - whether (1) to accept the Offer at $0.65/share, (2) to sell their shares into the market at the same price to the Offeror, or (3) if they don't need cash, to just simply hold on to their Penguin shares for the many good things to come in the future - more dividends, further capital gain, 'small penguins', etc., for themselves or their children. It is as simple as that. I believe most minority shareholders are smart enough to make the right decisions for their own interests.

[Mushy]

Below is just my own guess what is happening and will happen.

For offerer to achieve the number of shares to force delist is very very challenging. They would need to revise the offer price by a significant amount to achieve that. Increasing by 5 cents or 10 cents probably will not make the neccesary impact. They are not going to be super generous and therefore they will not revise, regardless of what thy stated about their intention to delist the company. There is nothing wrong to state such an intention and not go all out to achieve it.

To achieve 50% for the offer to be unconditional seems much more achievable. They probably already have the info on this to feel confident that this will not be a futile exercise.

Why is the share price at $0.65 now? Because offerer is buying at this price in the market. I am sure majority or almost all the huge buy queue at $0.65 is due to them. What happens after this offer closes? The $0.65 offer disappears from the market. Does any valuebuddies want to buy from the open market at this price level after the offer closes, since it has been perceived as undervalued. 62c? 60c? It was trading at 40+c recently, and defintely below 60c just before the company first announced there might be something.

What I am saying is that there will be a group of shareholders who are not really willing to accept the offer at $0.65 but feels that the share proice will drop below this after the offer ends. So they thought of selling at 65c and buy back cheaper later. I don't think there are enough of this group of shares to trigger delist, but would contribute to the offer reaching unconditional.

[ghchua]

Hi ghchua,
I really wish you would not try so hard to quote the rules book here. As the appointed IFA, PrimePartners, despite having a decent market reputation, IMHO, has behaved like a 'two-hand' IFA in this instance, by having given their summary opinion on the Offer as "not fair but reasonable". That I am very sure is confusing to many minority shareholders. This has been picked up by some media as well.

I really wish I would not quote from the rule book here, but then I will not be able to explain clearly why IFAs opinions are being given in this way. OK, I will try to explain it in my own way.

I think we have sort of agree that the offer is not fair, so let me try to explain why IFA deemed it to be reasonable. To determine whether the offer is reasonable or not, the IFA looks at other factors besides the value of the shares as compared to the offer price. This includes factors like trading liquidity, premium over VWAP, its trading price history as compared to NAV, comparison with precedent takeover offers and comparable companies etc, chances of a completing offer etc.

There are so many factors here so I just discuss a few here as you can read the rest in the IFA letter. One is that Penguin shares had been trading below NAV for very long. Secondly, the offer price as compared to VWAP for various periods is mostly higher. Thirdly, trading liquidity had been low. Therefore, taking into all these factors and more, the IFA deemed the offer to be reasonable.

[ghchua]

They are not going to be super generous and therefore they will not revise, regardless of what thy stated about their intention to delist the company. There is nothing wrong to state such an intention and not go all out to achieve it.

Hi Mushy,

I think we should not doubt the offeror's intention as stated in the circular, which is to make Penguin its wholly owned subsidiary and delist it.

We must understand that the offeror, Dymon Asia is a private equity firm. Why would they want to hold onto a listed company? Granted it does not mean that they will not, but I will just mean that they would not be able to derive maximum value from running this exercise and end up with a controlling stake in a listed company.