Spindex Industries

[hh488]

Problem is if to vote for no, then expect to stay long with the stock for at least a year or more unless there is a competing bid.

Somehow, this stock was sold down the last 6 mths to such a level that the SH easily make an offer that is attractive to themselves only.

[BlueKelah]

haha normally no one comment, suddenly so many VB online post.

aiyah my free shares they also want, nevermind lah.

US car manufacturing seems to be booming more now under trump and USD up liao, should be veli gud for Spindex this year. But if Tesla and EV become successful overnight, Spindex will get impacted pretty badly. Probably good time to call it a day.

[dydx]

The GO price of $0.85/share - vs. the latest 31Dec16 NAV/share at $0.8065, inclusive net cash of $0.27/share - is obviously way to low for a well-established, growing, and steadily profitable regional business operation that has been generating surplus cash (after capex) of $10.0m to $15.0m yearly in the past 5 years, supported by a high-quality (mostly MNC) customer base, strong technical capability, production efficiency, prudent financial management, and a lot of business goodwill.

Assuming Spindex makes another $0.065/share in EPS in 2H ending 30Jun17 (vs. 1H: $0.0685/share), NAV/share would have risen to in excess of $0.87/share by 30Jun17 - i.e. in less than 5 months time. At that point, all shareholders can also reasonably expect another good - and justifiably higher! - final dividend for this FY17 (FY16: $0.023/share) based on a higher full-year EPS expected to be in excess of $0.13/share.

If the Tans are serious about taking Spindex private in order to run the business purely for their own longer-term benefits - including possibly selling the entire business of a then larger scale to the highest bidder in the future - without the burdens of a publicly-listed company, they will have to be prepared to pay a more reasonable and higher exit price, in order that most minority shareholders would feel good that it makes sense to sell their prized Spindex shares to the Tans, and the 2 sides could part ways without too much unnecessary animosity. In a nut shell, usually minority shareholders would not choose to stand in the way of the business founder or controlling shareholder who also manages the business and now wishes to privatise the company by paying a fair and reasonable exit price.

I believe many minority shareholders would be able to agree to the $0.85/share GO proposed if Spindex's BOD can sanction an interim dividend - to be paid out from Spindex's net cash reserve/past accumulated profits which belong to all shareholders! - of at least $0.15/share as a sweetener.

[d.o.g.]

Hi d.o.g and all
The Tans cannot raise the price.  But can the company pays a dividend of say $0.25 to all shareholders before the scheme is approved and takes effect?  They can insert a resolution to pay the dividends, contingent on the scheme of arrangement being approved.  In that way, all the minorities shareholder effectively get more.  Spindex has alot of surplus cash....

Paying out a dividend would effectively raise the price the Tans are paying, so this would not be allowed. In any case the Tans are not interested in raising the price as per the original announcement.

[d.o.g.]

There have been several comments and complaints that the price being offered by the Tans is too low considering the company's net asset value, earning power etc. This betrays a lack of understanding about how a buyout works.

People are not wrong to estimate that Spindex could be worth more than $1. The financial statements are public, and it is not difficult to put some sort of multiple on the earnings and add in the excess cash to arrive at a per-share figure meaningfully higher than $0.85, for example $1.20 as mentioned previously. Indeed it is quite possible that the Tans themselves value Spindex at close to $1.20. Let's say they value Spindex at $1.20.

But it is wrong to then expect the Tans to pay $1.20, because then they won't make any money! Business does not work like that. Instead the Tans will pay $0.85, so that they can realize a profit from their estimated fair value of $1.20.

It should be obvious that the buyer of a company expects to make a profit, whether through extraction of cash from operations or from a future sale of the company. This means that if the buyer thinks the company is worth $1, they will NOT pay $1 because then they won't make any money.

Crudely speaking, in any M&A deal a buyer should aim to make at least 50% in order to allow for errors in valuation or mistakes in future operations. So for a company whose fair value is $1 the buyer would likely bid no higher than $0.67.

THERE IS NO WAY FOR MINORITY SHAREHOLDERS TO GET $1.

Instead, minority shareholders need to buy far below $0.67, so that at the bid of $0.67 they would make an acceptable return. To make an equivalent 50%, they would need to buy at $0.44, then sell it to the buyer at $0.67, who will then realize the full $1 of value.

Not understanding the above has led to many investors getting stuck in "value traps" thinking that because a company is selling 30% below fair value, they are sure to make money from a buyout. As shown above, this is not correct.

As usual, YMMV.

[se2037]

There have been several comments and complaints that the price being offered by the Tans is too low considering the company's net asset value, earning power etc. This betrays a lack of understanding about how a buyout works.

People are not wrong to estimate that Spindex could be worth more than $1. The financial statements are public, and it is not difficult to put some sort of multiple on the earnings and add in the excess cash to arrive at a per-share figure meaningfully higher than $0.85, for example $1.20 as mentioned previously. Indeed it is quite possible that the Tans themselves value Spindex at close to $1.20. Let's say they value Spindex at $1.20.

But it is wrong to then expect the Tans to pay $1.20, because then they won't make any money! Business does not work like that. Instead the Tans will pay $0.85, so that they can realize a profit from their estimated fair value of $1.20.

It should be obvious that the buyer of a company expects to make a profit, whether through extraction of cash from operations or from a future sale of the company. This means that if the buyer thinks the company is worth $1, they will NOT pay $1 because then they won't make any money.

Crudely speaking, in any M&A deal a buyer should aim to make at least 50% in order to allow for errors in valuation or mistakes in future operations. So for a company whose fair value is $1 the buyer would likely bid no higher than $0.67.

THERE IS NO WAY FOR MINORITY SHAREHOLDERS TO GET $1.

Instead, minority shareholders need to buy far below $0.67, so that at the bid of $0.67 they would make an acceptable return. To make an equivalent 50%, they would need to buy at $0.44, then sell it to the buyer at $0.67, who will then realize the full $1 of value.

Not understanding the above has led to many investors getting stuck in "value traps" thinking that because a company is selling 30% below fair value, they are sure to make money from a buyout. As shown above, this is not correct.

As usual, YMMV.

Thank you d.o.g. this is a very good point. I beg to differ in that the value of an asset for a majority shareholder and a minority is different. All things being equal, an asset is worth more in the hands of a majority given the possibility to effect change, create synergies...

Sent from my SM-N910G using Tapatalk

[ksir]

There have been several comments and complaints that the price being offered by the Tans is too low considering the company's net asset value, earning power etc. This betrays a lack of understanding about how a buyout works.

People are not wrong to estimate that Spindex could be worth more than $1. The financial statements are public, and it is not difficult to put some sort of multiple on the earnings and add in the excess cash to arrive at a per-share figure meaningfully higher than $0.85, for example $1.20 as mentioned previously. Indeed it is quite possible that the Tans themselves value Spindex at close to $1.20. Let's say they value Spindex at $1.20.

But it is wrong to then expect the Tans to pay $1.20, because then they won't make any money! Business does not work like that. Instead the Tans will pay $0.85, so that they can realize a profit from their estimated fair value of $1.20.

It should be obvious that the buyer of a company expects to make a profit, whether through extraction of cash from operations or from a future sale of the company. This means that if the buyer thinks the company is worth $1, they will NOT pay $1 because then they won't make any money.

Crudely speaking, in any M&A deal a buyer should aim to make at least 50% in order to allow for errors in valuation or mistakes in future operations. So for a company whose fair value is $1 the buyer would likely bid no higher than $0.67.

In a way, how low-a-ball offered to minority shareholder shows the appreciation of the Management. Hoping to earn 50% MOS is kind of undercutting the long term shareholders.

Imho, Spindex is a company that put back the capital to grow and the results so far reflected that. The dividend payout were low and capital was putting back to work while still getting a decent ROE.

Imagine, a long term shareholder (i am not, just a lucky or unlucky 2 days shareholder), after enduring subpar dividends and starting to see the result, is thrown such an offer by his active partners, how would he think?

Of course, it is hard for active partner (Management) to appreciate and cut a fair share to passive shareholders who are mostly anonymous.
Hence, this shows the level of integrity of your active partners.
If they treat the minority shareholders like how Buffett think of his minority shareholders as family (in fact some of them really are), the offer could be different?

[dxdx]

voting no as well, and I urge others to do the same. Tans want to buy it cheap, as they should; however current shareholders also want a fairly valued price, as it is in our right to demand one. hopefully a happy balance can be reached. ~$1 seems more than fair considering the cash holdings and cashflows Spindex is able to generate.

in addition to that, I've noted that the price has been artificially depressed to sub $0.70 for a while.

[header]

voting no as well, and I urge others to do the same. Tans want to buy it cheap, as they should; however current shareholders also want a fairly valued price, as it is in our right to demand one. hopefully a happy balance can be reached. ~$1 seems more than fair considering the cash holdings and cashflows Spindex is able to generate.

in addition to that, I've noted that the price has been artificially depressed to sub $0.70 for a while.

I am behind you too, dydx.  Agree $1 is more fair, considering the premium needed for privatisation.  But end of the day the position of Yeo is important.

[ksir]

voting no as well, and I urge others to do the same. Tans want to buy it cheap, as they should; however current shareholders also want a fairly valued price, as it is in our right to demand one. hopefully a happy balance can be reached. ~$1 seems more than fair considering the cash holdings and cashflows Spindex is able to generate.

in addition to that, I've noted that the price has been artificially depressed to sub $0.70 for a while.

On the other side of the coin, if you reject this and the price later on go back to S$0.7 or lower, how do you feel and will you react?
Do you still trust the Management to invest more?

As I've mentioned, I think the intention may not be delisting but more of the accumulation, hence I'm happy to see the price back to 0.7. Alas, as Yeokiwi has pointed out, the 0.85 is going to be the anchor for foreseeable times in the future.