Zagro Asia

[Nick]

Thanks for sharing your analysis with us RBM ! I have to add this company to my reading list.

[RBM]

Rumours are circulating today that the Zuellig Offer will not be made available to shareholders based outside Singapore - it will allegedly only be made available to those shareholders with a Singapore base. And furthermore, I understand that some of these non-Singapore based shareholders, including Zagro's own people in Manila etc., are apparently very unhappy that Zagro's leadership has agreed to this "strange" approach.

As a reminder, the Zeullig Offer is effectively the sale of Skopini's current ~ 24.7% shareholding to the other shareholders in proportion to their shareholding at the discounted price of S$ 0.15 per share - vs today's S$ 0.25 closing on the SGX. This allows a holder of say 50,000 shares the right but not the obligation to buy a further ~ 16,000 shares at a price of S$ 0.15 per share

If these rumours are correct, I believe the market regulator should get itself involved - it does the Singapore Market's reputation no good whatsoever if it allows non-Singapore based Shareholders of an SGX counter to be treated so differently (i.e. so much worse) than Singapore based shareholders. A share is a share and they should have equal rights. As I read it, and my understanding may well be wrong here, one consequence of this differential treatment will be that the CEO, who is in effect underwriting the Zuellig Offer, will be able to buy more than his proportionate entitlement of Skopini's shares at S$ 0.15 per share. If so (repeat: if so) then that is simply wrong in my view.

Although I'm personally able to take up the Zuellig offer, I am unsure that this smells right. I'll be interested to see if the powers that be ask a few pertinent questions.

[d.o.g.]

Rumours are circulating today that the Zuellig Offer will not be made available to shareholders based outside Singapore - it will allegedly only be made available to those shareholders with a Singapore base. And furthermore, I understand that some of these non-Singapore based shareholders, including Zagro's own people in Manila etc., are apparently very unhappy that Zagro's leadership has agreed to this "strange" approach.

One solution is for Zagro itself to buy back the Zuellig shares and cancel them. Then everybody has automatically bought the shares pro-rata without having to stump up cash, and no issues about local/foreign shareholders. Since Zagro's balance sheet is quite decent it can easily finance the $10m purchase without too much trouble.

[weijian]

As I understand it portuser.........

Why is Skopini divesting its shareholdings in Zagro?

Answer: (Its really related to you your first question) ........ So that a long-standing rigid non-compete clause will no longer apply. i.e. so that they can compete with Zagro. Skopini are selling at a heavily discounted ~ 37.7% price to yesterday's closing.

Vested,
RBM

hi RBM,
Expansion to above question:
(1) Why is Skopini selling at such a heavy discount? Are they desperate because they know they will be more profitable with Zuellig? or they believe their selling price is already fair valued?

(2) Why are they using this "method of divestment" ?, ie. offer to sell to ALL shareholders the rights to buy from them. Wouldn't some kind of married deal to 1 buyer (eg. the CEO, or the company as sharebuyback, or some other private investor/s) be cheaper and guaranteed (even if they sell at the same discount)? If we assume those options have already been considered, then why are those people giving up the chance to do so, and let the public enjoy this discount/option?

[RBM]

Thank you for your message of two days ago weijian - my apologies for taking so long to respond - I am not as quick as I was.

You posed two questions, viz.::
(1) Why is Skopini selling at such a heavy discount? Are they desperate because they know they will be more profitable with Zuellig? or they believe their selling price is already fair valued?

(2) Why are they using this "method of divestment" ?, ie. offer to sell to ALL shareholders the rights to buy from them. Wouldn't some kind of married deal to 1 buyer (eg. the CEO, or the company as sharebuyback, or some other private investor/s) be cheaper and guaranteed (even if they sell at the same discount)? If we assume those options have already been considered, then why are those people giving up the chance to do so, and let the public enjoy this discount/option?

I can only speculate as regards your first question. Sorry. Clearly Skopini/Zuelling want to be released from the shackles of their non-compete clause with Zagro. But do they also need the money? ...... and do they need it quickly? Zagro's 29th February 2012 SGX disclosure implies that the answer to the latter question that I pose is yes. If Skopini drip-fed their 24.7% Zagro shareholding into the market this would likely materially depress the Zagro share price and consequently the value of their shareholding may decline significantly over the lengthy period it would take them to fully deplete their holding. And I understand the non-compete clause applies to Skopini/Zuellig (and their successors), irrespective of whether they hold 0.7% or 24.7% of Zagro's equity.

I wonder if a third party investor has approached Skopini with a higher offer than S$ 0.15 per share? If this hasn't happened and if it doesn't happen then this indicates to me that Zuellig/Skopini have pitched the price for their Zagro shares about right, albeit with a material discount.

I note that since the morning following Zagro's disclosure of the Zuellig Offer to the SGX, Zagro's share price has retreated to nearer where it was immediately prior to the announcement. As investors and shareholders digest the deal, they realise there are a lot of (as yet unanswered) questions posed by the structure of the deal and the S$ 0.15 per share pricing level of the Zuellig Offer.

As regards your second question, I have to say the proposed deal structure appears contrived - why make it so darn complicated? - and why deny all shareholders - i.e. incuding non-Singapore-based-shareholders - the right to purchase Skopini's Zagro shares at S$ 0.15 per share? I am 100% with d.o.g., when he asks why doesn't Zagro simply purchase Skopini's holding and cancel the shares? Zagro certainly has the balance sheet strength and all the existing shareholders, i.e. including foreigner shareholders and the CEO, would benefit equally from such a transparent and simple approach. As it stands, Zagro's CEO has the possibility to increase his % holding in Zagro at a heavily discounted cost to him. This does not have a great appearance, IMHO. The current deal structure seems to carry unnecessary risks and a lesser degree of surety.

As regards Skopini selling their Zagro Shareholding to another party:
(a) That third party would inherit and be bound by the same non-compete provisions Skopini has been shackled with. This would seem to preclude the interest of acqusitive agribusiness companies.
(b) A Financial Investor might be interested in Skopini's holding but he would be taking on a 24.7% shareholding in a company in which another party has a ~ 44% shareholder, i.e. the CEO. This likely makes such a proposition unnattractive.
© If the shares were sold to the CEO he would need to make a G.O for the entire Company, given his current direct and indirect ~ 44 shareholding. The proposed deal structure is, to my eyes, a variant of such a way forward in that the CEO is underwriting the Zuellig Offer and mandatorily will follow it up with a G.O. at a S$ 0.15 share price for the entire Company - highly unlikely this will be taken up.

In my opinion ....... I remain somewhat surprised that the SGX has not asked a few probing questions regarding the proposed deal structure. May be they have?

Thanks again weijan. Have a restfull Sunday.

Vested.

[weijian]

hi RBM, thanks for the well thought out reply.
I do not think it make much financial sense to deplete ur b/s by buying bk ur shares from a (future) competitor? I ll be following this, lookin fwd to some "action" to occupy some attention in a market where there isnt much other action..

[dydx]

Anyone supporting the proposed 32-for-100 Preferential Offering of Zagro Asia shares at a discounted price of $0.15/share by Skopini / Zuellig Group?....
http://info.sgx.com/webcoranncatth.nsf/V...D002F4183/$file/Skopini_Annc_16Jul12.pdf?openelement

Against Zagro Asia's last done price of $0.28 - which is not demanding at all! - this non-renounceable Preferential Offering appears to be a sweet deal for all the other shareholders of Zagro Asia!

[Blackjack]

Anyone supporting the proposed 32-for-100 Preferential Offering of Zagro Asia shares at a discounted price of $0.15/share by Skopini / Zuellig Group?....
http://info.sgx.com/webcoranncatth.nsf/V...D002F4183/$file/Skopini_Annc_16Jul12.pdf?openelement

Against Zagro Asia's last done price of $0.28 - which is not demanding at all! - this non-renounceable Preferential Offering appears to be a sweet deal for all the other shareholders of Zagro Asia!

My sentiments too. This is a rare opportunity for existing shareholders to pick up extra shares on the cheap, though unfortunately it is spelt out clearly subscription for excess allocation is not allowed.

[RBM]

I agree with you dydx - I added to my Zagro holdings and had a further nibble yesterday at S$ 0.28 per share. The simplistic way I see it, after taking into account the Skopini-Zuellig arrangements and the "32 for 100 at S$ 0.15 deal", this gives me an average Zagro share purchase price of S$ 0.2485 (a level not seen in Zagro's prevailing share price since early March this year) - for a company that will be little if any different after the entire, rather contrived, Skopini-Zuellig process is completed. That equates to a dividend yield of just over 4% in a company that has been a darn solid performer over the years.

Vested,
RBM

Anyone supporting the proposed 32-for-100 Preferential Offering of Zagro Asia shares at a discounted price of $0.15/share by Skopini / Zuellig Group?....
http://info.sgx.com/webcoranncatth.nsf/V...D002F4183/$file/Skopini_Annc_16Jul12.pdf?openelement

Against Zagro Asia's last done price of $0.28 - which is not demanding at all! - this non-renounceable Preferential Offering appears to be a sweet deal for all the other shareholders of Zagro Asia!

[dydx]

The Circular to Shareholders (dated 17Jul12) providing all pertinent info on and supporting the proposed Settlement Agreement with Skopini Ltd/Zuellig Group makes interesting reading.....
http://info.sgx.com/listprosp.nsf/5ec09b...f000ded5f/$FILE/ZAL%20EGM%20Circular.pdf
The EGM to approve the implementation of the Settlement Agreement is set for 1Aug12.

As part of the Settlement Agreement, Zagro Asia is supposed to receive from Skopini Ltd/Zuellig Group a cash payment of $1.139m (expected in Sep12), which is expected to raise EPS by $0.0044 in 2H-FY12 (ending 31Dec12).

At today's (30Jul12) closing share price of $0.27, the proposed 32-for-100 Preferential Offering of Zagro Asia shares by Skopini Ltd/Zuellig Group at a discounted price of $0.15/share, will provide an investor of 100 lots an opportunity to achieve a lower average price of $0.2409/share after taking up the offer in full. Quite an attractive deal IMHO, considering Zagro Asia has a steady business and consistently pays out a $0.01/share yearly dividend.

Shareholders/investors do take note that trading on Zagro Asia shares will go ex-Zuellig Offering on 6Aug12.