Silverlake Axis

[weii]

Hi weii,

The offeror cannot buy at more than 36c per share (since they said that the offer price is final). Based on the trading price of Silverlake for the past few days, it had been more than 36c. Therefore, those who bought Silverlake shares at above offer price are likely to accept the combination offer of cash plus RPS. Which further reduces the free float to move it towards the 75% acceptance level for delisting.

It seems like those who bought in the past few days are more likely to block the delisting than to accept cash plus RPS. They are likely long-term investors in Silverlake who believe it is worth more than $0.48. By blocking it, Silverlake will have the obligation to restore free float and stay listed on SGX.

[weijian]

Hi weii,

The offeror cannot buy at more than 36c per share (since they said that the offer price is final). Based on the trading price of Silverlake for the past few days, it had been more than 36c. Therefore, those who bought Silverlake shares at above offer price are likely to accept the combination offer of cash plus RPS. Which further reduces the free float to move it towards the 75% acceptance level for delisting.

It seems like those who bought in the past few days are more likely to block the delisting than to accept cash plus RPS. They are likely long-term investors in Silverlake who believe it is worth more than $0.48. By blocking it, Silverlake will have the obligation to restore free float and stay listed on SGX.

hi weii,

I wonder what is the basis for your thinking that those who bought at prices above 36cents (cash offer) on the open market, are "likely long term investors who are also likely to block the delisting"?

For sure, SLA could be worth more than 48cents. But I am quite that OPMIs wouldn't get full price (at least for the value they think SLA has) too.

When I look at the Top20 list from AR24, there is no other SSH that owns >5%. All the named individuals (ie. non-custodians) own collectively ~4% as of 16th Sept. When the level of acceptances was first done on 18th Sept, Chairman Goh's ownership only +1.4% and so it is quite clear none of these folks had accepted it then.

I am more inclined towards ghchua's assumption - ie. some of these folks, long term investors whom have more faith in Chairman Goh are getting the cash+RPS option.
Matter of fact, the deeply pocketed ones may actually buy more shares on the open market to increase their RPS exposure, since the RPS option is only 17% (6cents/36cents) of the asset allocation. For example, if one wants to increase their RPS to 34% or even 50%, then they need to double and triple their existing share count, and then accept the offer. This works in tandem.

[weii]

Hi weii,

The offeror cannot buy at more than 36c per share (since they said that the offer price is final). Based on the trading price of Silverlake for the past few days, it had been more than 36c. Therefore, those who bought Silverlake shares at above offer price are likely to accept the combination offer of cash plus RPS. Which further reduces the free float to move it towards the 75% acceptance level for delisting.

It seems like those who bought in the past few days are more likely to block the delisting than to accept cash plus RPS. They are likely long-term investors in Silverlake who believe it is worth more than $0.48. By blocking it, Silverlake will have the obligation to restore free float and stay listed on SGX.

hi weii,

I wonder what is the basis for your thinking that those who bought at prices above 36cents (cash offer) on the open market, are "likely long term investors who are also likely to block the delisting"?

For sure, SLA could be worth more than 48cents. But I am quite that OPMIs wouldn't get full price (at least for the value they think SLA has) too.

When I look at the Top20 list from AR24, there is no other SSH that owns >5%. All the named individuals (ie. non-custodians) own collectively ~4% as of 16th Sept. When the level of acceptances was first done on 18th Sept, Chairman Goh's ownership only +1.4% and so it is quite clear none of these folks had accepted it then.

I am more inclined towards ghchua's assumption - ie. some of these folks, long term investors whom have more faith in Chairman Goh are getting the cash+RPS option.
Matter of fact, the deeply pocketed ones may actually buy more shares on the open market to increase their RPS exposure, since the RPS option is only 17% (6cents/36cents) of the asset allocation. For example, if one wants to increase their RPS to 34% or even 50%, then they need to double and triple their existing share count, and then accept the offer. This works in tandem.

The RPS will be mandatorily redeemed by the Offeror on the expiry of five (5) calendar years and the upside is capped at $0.48. The entry of Ikhlas Capital Singapore Pte. Ltd. as one of the Offeror shows great confidence in the future of Silverlake Axis. Ikhlas Capital recently also saw great potential in Food Empire and provided a loan to it. The fact that Silverlake Axis is willing to pay much higher at $0.48 in five years time as compared to $0.36 for cash offer also shows strong confidence in the Offeror that Silverlake Axis will achieve great success.
 
Since there is no right of compulsorily acquisition by the Offeror, long-term investors who believe in Silverlake Axis may consider buying now to block the delisting. The Offeror may be willing to pay a higher price than $0.48 to take it private again in the future and it will not cost much since there is only a small group of shareholders left
holding 10% of Silverlake.
 
I fear that shareholders who sell in the open market now may miss out on some great potential gains. Fortunately, PCI minority shareholders blocked the cash offer by Chuan Hup at $0.50 and were eventually rewarded with a new offer by Platinum Equity Advisors at $1.33. The article below showed how much gains PCI shareholders received by holding tightly to their shares.

https://www.nextinsight.net/story-archiv...e-you-made
 
Silverlake Axis is very attractive to big players who are eager to enter the vast core banking and insurtech software industry in the rapidly developing Asia region. I will not be surprised if such a big player will eventually offer a high price for Silverlake Axis.

[owq]

I would be wary of anchoring on the price of $0.48. I speculate that this was Goh's idea to make us think harder because he thought the cash offer was probably not attractive enough. 1. The present value of the RPS is actually much lower, 2. The RPS have limited rights. No guarantee of payout. They can file for bankruptcy. In a sense their downside is capped, even though they're "borrowing" at quite high interest

As for the PE fund, they may be able to extract more value but that doesn't mean OPMIs will be able to extract the same value

We can only speculate on the future value, but if we trust IFA's advice, Silverlake is basically fairly valued right now. Personally, I am less optimistic about the future as I have been slightly disappointed with the earnings performance of Silverlake the past few years, even with Covid taken into account

[weijian]

Hi weii,

The offeror cannot buy at more than 36c per share (since they said that the offer price is final). Based on the trading price of Silverlake for the past few days, it had been more than 36c. Therefore, those who bought Silverlake shares at above offer price are likely to accept the combination offer of cash plus RPS. Which further reduces the free float to move it towards the 75% acceptance level for delisting.

It seems like those who bought in the past few days are more likely to block the delisting than to accept cash plus RPS. They are likely long-term investors in Silverlake who believe it is worth more than $0.48. By blocking it, Silverlake will have the obligation to restore free float and stay listed on SGX.

hi weii,

I wonder what is the basis for your thinking that those who bought at prices above 36cents (cash offer) on the open market, are "likely long term investors who are also likely to block the delisting"?

For sure, SLA could be worth more than 48cents. But I am quite that OPMIs wouldn't get full price (at least for the value they think SLA has) too.

When I look at the Top20 list from AR24, there is no other SSH that owns >5%. All the named individuals (ie. non-custodians) own collectively ~4% as of 16th Sept. When the level of acceptances was first done on 18th Sept, Chairman Goh's ownership only +1.4% and so it is quite clear none of these folks had accepted it then.

I am more inclined towards ghchua's assumption - ie. some of these folks, long term investors whom have more faith in Chairman Goh are getting the cash+RPS option.
Matter of fact, the deeply pocketed ones may actually buy more shares on the open market to increase their RPS exposure, since the RPS option is only 17% (6cents/36cents) of the asset allocation. For example, if one wants to increase their RPS to 34% or even 50%, then they need to double and triple their existing share count, and then accept the offer. This works in tandem.

The RPS will be mandatorily redeemed by the Offeror on the expiry of five (5) calendar years and the upside is capped at $0.48. The entry of Ikhlas Capital Singapore Pte. Ltd. as one of the Offeror shows great confidence in the future of Silverlake Axis. Ikhlas Capital recently also saw great potential in Food Empire and provided a loan to it. The fact that Silverlake Axis is willing to pay much higher at $0.48 in five years time as compared to $0.36 for cash offer also shows strong confidence in the Offeror that Silverlake Axis will achieve great success.
 
Since there is no right of compulsorily acquisition by the Offeror, long-term investors who believe in Silverlake Axis may consider buying now to block the delisting. The Offeror may be willing to pay a higher price than $0.48 to take it private again in the future and it will not cost much since there is only a small group of shareholders left
holding 10% of Silverlake.
 
I fear that shareholders who sell in the open market now may miss out on some great potential gains. Fortunately, PCI minority shareholders blocked the cash offer by Chuan Hup at $0.50 and were eventually rewarded with a new offer by Platinum Equity Advisors at $1.33. The article below showed how much gains PCI shareholders received by holding tightly to their shares.

https://www.nextinsight.net/story-archiv...e-you-made
 
Silverlake Axis is very attractive to big players who are eager to enter the vast core banking and insurtech software industry in the rapidly developing Asia region. I will not be surprised if such a big player will eventually offer a high price for Silverlake Axis.

hi weii,

Since I didn't really study deep in SLA, I wouldn't be engaging into a discussion on the relative price/valuation of SLA and its attractiveness.

I just don't agree that they are a sizeable amount of minorities who are "buying above 36cents" to prevent the 75% threshold (to delist the company). Rather, these minorities who "buy above 36cents" are probably folks who are going to accept the cash+RPS offer as I described earlier.

And 2 more things in terms of structure which we have to be clear, before we decide to use it as "supporting evidence" for our own thesis/actions:
(1) Ikhlas Capital is vested (via warrants) in the company that has a majority stake in SLA. And this controlling company is now the offerer.
(2) Ikhlas Capital provided a loan to a Food Empire's subsidiary. They have the option to convert the loan to Food Empire shares or the subsidiary's shares.

In both situations (1) and (2) , does Ikhlas Capital look to be on the same boat as the OPMI of the listed entity?

[dzwm87]

We can only speculate his motive behind such a structure. Of course, the #1 question is whether it is such a good deal and whether it risks being a major issue 5 years later. Some things I observed:

- The absolute funding difference between option 1 and 2 is around SGD 100 million while he is taking a bridging loan of up to SGD 230 million. Amount differs depending on the outcome mix of 1 and 2 but it looks like too much trouble just to squeeze out the 25% minority. RPS play is more of a solvency test. There is always the option of doing nothing. So it's either he knows there is a ramp up of business in the future or business has become so desperate of cashflow that he needs to fund it directly. Somehow, FY2024 results collapsed and a tender offer was made.

- Balance sheet has ample funding from net cash position and an unsold stake in GIT (300465 SZ) which recently just went up by 70%. Conveniently, this suddenly was reclassified as a non-current asset in FY2024.

- Legacy concern of RPT; the dynamics of which is interesting when considered in his shoes and his perceived opportunity cost.

- Interesting comparison with other take-out options (e.g. RE&S and L'occitane) where you roll over to a private hold co with no guaranteed payout except the hope that it is going to re-IPO at a higher valuation. In this case, a guaranteed price and holding period with preference share ranking above him which theoretically is better but ended up being frowned upon.

- Incremental value differential from an existing shareholder vs a new shareholder. For someone who has been holding Silvelake shares, the 0.18 difference from the 0.30 price reflects only a ~50% upside over 5 years. (Active investor: I can beat this return!) For someone who is buying new to participate in the RPS, the 0.18 on the 0.06 reflects a higher return.

- Inertia from institutional holders given career risk and inability to hold private shares. Not many fund managers are certain they can stay in their job for the next 5 years and risk management perspective won't want a private shares to be stuck in the books in the event of redemption or fund liquidation. Big headache.

[weijian]

@dzwm87,

There is just too much informational asymmetry, isn't it? But those are the cards that OPMIs have to learn to play with.

"a guaranteed price and holding period with preference share ranking above him" are relatively hollow when OPMIs are looking for assurances (not verbal but cues to understand how assured one can be) and the absence of listing rules when dealing with the share structure. In this case, I believe OPMIs need to be well versed in the Companies Act to know how their protection level.

Finally, for OPMIs choosing the RPS option, they are getting 30cents cash and rolling on the 6 cents for 18cents. The 30cents cash has an opportunity cost and so can be invested in other areas as well. So we can think of it as 2 investments - (1) 30cents cash can be invested in new assets to generate new returns and (2) 6cents for 18cents (200% return over 5 years). I am quite sure any investor will have doubts about beating (2), regardless of "style".

[weijian]

SLA have lost their free float. To recap, their VGO has been deemed "fair and reasonable" by the IFA ~2 weeks ago. The 2nd requirement to get delisted is to get 75% acceptances.

To recap, % of shareholders not acting in concert = 100 - 74.01 = 25.99%
75% of acceptances = 0.75*25.99% = 19.5%
Offerer/concerted parties will therefore require 74.01% + 19.5% = 93.51%.

As of end 7th Oct 2024, it has 90.53% and will require another 3%, or ~30% of existing free float to get past the hurdle to delist the company (as in its intention). And it has 2 weeks to do so.

DEALINGS DISCLOSURE, LEVEL OF ACCEPTANCES, LOSS OF FREE FLOAT, AND NON-ASSENTING SHAREHOLDERS' RIGHTS UNDER SECTION 215(3) OF THE COMPANIES ACT

Resultant total percentage of the total number of issued Shares owned or controlled by the Offeror and its Concert Parties: 90.53%

As at 26 August 2024, being the Offer Announcement Date, the Offeror and its Concert Parties collectively owned or controlled an aggregate of 1,863,440,968 Shares, representing approximately 74.10% of the total number of issued Shares.

https://links.sgx.com/FileOpen/Dealings_...eID=821197

Delisting is now (almost) a done deal. Compulsory acquisition requires ~97.4% and reminds to be seen if they can get the remaining 1.2%. The closing date is next week but I believe it will probably be extended again.

If CA does not happen, OPMIs whom are still holding on, have to decide whether it is better to be (1) OPMI of unlisted company or (2) OPMI holding "preferred shares" in an unlisted entity holding the unlisted company. Both have pros and cons - so one has to choose their poison well.

ACCEPTANCES RECEIVED FROM 75% OF INDEPENDENT SHAREHOLDERS

Resultant total percentage of the total number of issued Shares owned or controlled by the Offeror and its Concert Parties 96.26%

https://links.sgx.com/FileOpen/At_Least_...eID=822365

[¯|_(ツ)_/¯]

Silverlake @ 37cents

Thanks WJ. Earlier you wrote: 6cents for 18cents (200% return over 5 years). I am quite sure any investor will have doubts about beating (2), regardless of "style"

I had to agreed that 200% return over 5 years is a fantastic ideas and I even resorted to invest using my CPF $$$.  Given that compound interest of 2.5-6% every year, it would takes many years to achieve 200% return.  

Wish me luck and I really hope to get the 200% return back to CPF 

Will update everyone again 5 years later. 

Meanwhile, enjoy Switzerland Switzerland: 


Gratitude