Auric Pacific Group

[Debronic]

Some thoughts here from a corporate finance perspective:

The Offeror appears to be relying on an interesting and narrow interpretation of Section 215 of the Companies Act that governs compulsory acquisition. The Act states that the offeror will have the right to compulsory acquisition if the transfers involve 90% of all the shares in that class. And since the offer does not extend to the shares of LCR and Goldstream, there is no actual transfer of these shares, regardless of the fact that they are concert parties. The offer will never result in a transfer of 90% of the shares and thus compulsory acquisition does not apply. The no put right is also a result of the same interpretation.

This is likely to be a rather contentious point going forward as the Offeror seems to be following the letter but not spirit of the law unless this interpretation is as a result of consultation with SIC.

It is also worth noting that while this may be seem to be highly disadvantageous to minority shareholders, the Offeror by virtue of them having lost the right to squeeze minorities out, will likely have to contend with them hanging around should they succeed in delisting the company but not in getting all shareholders to tender their offer shares. Of course, once they are delisted, they can always follow up with another round to take them out.

Last but not least, this exercise also provided SR an opportunity to make large open market purchases and up his controlling stake without chasing up the price too much. This would otherwise have not been possible during normal trading days when liquidity is much lower. A good example would be yesterday, when he managed to acquire 2.325 million shares at $1.65. He would probably need several months to acquire the same amount and drive up share price beyond $1.65 under normal circumstances.

Regarding the compulsory acquisition comments, I don’t think I’ve seen an instance where Section 215 has such a wording in an offer announcement. Nevertheless, I see Section 215 as a provision that is pro-Offeror since it allows the Offeror to take full control of the Company if the dissenting shareholders refuse to ‘give up’ their minority stakes. Since the Offeror is disavowing any right to look to Section 215, I think substantively, it affects the Offeror’s view of the offer more than any thing else. 
Hypothetically, it may result in a higher offer price to incentivize all shareholders to accept the offer since the Offeror cannot rely on a lower price which is sufficient to get 90% of the votes.  So on the price front, it may be ‘pro-minority shareholders’. 

That said and without having all the details of the offer, I do agree that this is a rather unusual result. We should also note that the provision lies in the Companies Act and not the Takeover Code  and I wouldn’t know if the SIC would be able to render the confirmation of the Offeror’s view of Section 215 even if they were consulted on this. 

In sum, I don’t think the minority shareholders are disadvantaged – Section 215 is a sweep up provision designed to allow the Offeror to rip the shares out of the hands of the minority where the requisite 90% of all shares they do not already own is met. What this means is: minority shareholders who are content with holding illiquid shares in a private company are not given the option to. Such minority (stubborn) shareholders usually exist much to the chagrin of the majority shareholders since they just want to hold 100% of the shares of the target; rather than 99.xxx%.   

With regard to the point on driving the shares beyond $1.65, I don’t think the on-market purchase by the Offeror can be beyond $1.65 (since this is the Offer price). If this happens, the OSIM thing will happen again (see para 4 of http://www.mas.gov.sg/News-and-Publicati...l-Ltd.aspx).  Of course, this may be vastly different if what you mean is that he can drive the price up after the offer. 

(not vested)

Actually, there is a difference between the computation of the 90% threshold for the purposes of compulsory acquisition by the offeror (Section 215 (1)) vs that for the purposes of put by the minority shareholders under Section 215 (3). For compulsory acquisition by offeror, the offeror's shares will not be taken into account. That means that had SR used his two existing holding company to make the offer, he would have needed to hit a total of 76.72%+ 90%x(23.28%) = 97.67% just to achieve the right to compulsory acquisition. On the other hand, all the minority shareholders need is for the offeror to end up with 90% in order for the put option to come into effect. The offer announcement in fact explains this as well. You can see that one is obviously easier to achieve than the other. I would definitely deem the put right as more valuable to minority than the CA right to the offeror particularly if the offeror ends up with something between 90% and 97.67%. The current structure and way the offeror has interpreted it thus does disadvantage the minority shareholders. 

I would argue that instead of having to offer a higher price to incentivize shareholders, the intent and effect of this structure may be the opposite: that the offeror may not feel the need to offer as high a price as he otherwise would since minorities may be pressured to sell when the acceptance gets close to 90% for fear of being stuck as shareholders in a private company (as they no longer have the put right which gives them 3 months to decide whether to activate the put after offeror serves notice). 

Also, I think you may have misunderstood my last point. I am aware that the offeror cannot make open market purchases at a price higher than $1.65 without having to revise the offer upwards. All I am saying is that had the offer (which usually has the effect of putting a cap of the share price for at least during the offer period) not been in place, he would not have the oppotunity to acquire such a large amount of shares in the open market without driving the share price up above 1.65.

[Madmoney]

Some thoughts here from a corporate finance perspective:

The Offeror appears to be relying on an interesting and narrow interpretation of Section 215 of the Companies Act that governs compulsory acquisition. The Act states that the offeror will have the right to compulsory acquisition if the transfers involve 90% of all the shares in that class. And since the offer does not extend to the shares of LCR and Goldstream, there is no actual transfer of these shares, regardless of the fact that they are concert parties. The offer will never result in a transfer of 90% of the shares and thus compulsory acquisition does not apply. The no put right is also a result of the same interpretation.

This is likely to be a rather contentious point going forward as the Offeror seems to be following the letter but not spirit of the law unless this interpretation is as a result of consultation with SIC.

It is also worth noting that while this may be seem to be highly disadvantageous to minority shareholders, the Offeror by virtue of them having lost the right to squeeze minorities out, will likely have to contend with them hanging around should they succeed in delisting the company but not in getting all shareholders to tender their offer shares. Of course, once they are delisted, they can always follow up with another round to take them out.

Last but not least, this exercise also provided SR an opportunity to make large open market purchases and up his controlling stake without chasing up the price too much. This would otherwise have not been possible during normal trading days when liquidity is much lower. A good example would be yesterday, when he managed to acquire 2.325 million shares at $1.65. He would probably need several months to acquire the same amount and drive up share price beyond $1.65 under normal circumstances.

Regarding the compulsory acquisition comments, I don’t think I’ve seen an instance where Section 215 has such a wording in an offer announcement. Nevertheless, I see Section 215 as a provision that is pro-Offeror since it allows the Offeror to take full control of the Company if the dissenting shareholders refuse to ‘give up’ their minority stakes. Since the Offeror is disavowing any right to look to Section 215, I think substantively, it affects the Offeror’s view of the offer more than any thing else. 
Hypothetically, it may result in a higher offer price to incentivize all shareholders to accept the offer since the Offeror cannot rely on a lower price which is sufficient to get 90% of the votes.  So on the price front, it may be ‘pro-minority shareholders’. 

That said and without having all the details of the offer, I do agree that this is a rather unusual result. We should also note that the provision lies in the Companies Act and not the Takeover Code  and I wouldn’t know if the SIC would be able to render the confirmation of the Offeror’s view of Section 215 even if they were consulted on this. 

In sum, I don’t think the minority shareholders are disadvantaged – Section 215 is a sweep up provision designed to allow the Offeror to rip the shares out of the hands of the minority where the requisite 90% of all shares they do not already own is met. What this means is: minority shareholders who are content with holding illiquid shares in a private company are not given the option to. Such minority (stubborn) shareholders usually exist much to the chagrin of the majority shareholders since they just want to hold 100% of the shares of the target; rather than 99.xxx%.   

With regard to the point on driving the shares beyond $1.65, I don’t think the on-market purchase by the Offeror can be beyond $1.65 (since this is the Offer price). If this happens, the OSIM thing will happen again (see para 4 of http://www.mas.gov.sg/News-and-Publicati...l-Ltd.aspx).  Of course, this may be vastly different if what you mean is that he can drive the price up after the offer. 

(not vested)

Actually, there is a difference between the computation of the 90% threshold for the purposes of compulsory acquisition by the offeror (Section 215 (1)) vs that for the purposes of put by the minority shareholders under Section 215 (3). For compulsory acquisition by offeror, the offeror's shares will not be taken into account. That means that had SR used his two existing holding company to make the offer, he would have needed to hit a total of 76.72%+ 90%x(23.28%) = 97.67% just to achieve the right to compulsory acquisition. On the other hand, all the minority shareholders need is for the offeror to end up with 90% in order for the put option to come into effect. The offer announcement in fact explains this as well. You can see that one is obviously easier to achieve than the other. I would definitely deem the put right as more valuable to minority than the CA right to the offeror particularly if the offeror ends up with something between 90% and 97.67%. The current structure and way the offeror has interpreted it thus does disadvantage the minority shareholders. 

I would argue that instead of having to offer a higher price to incentivize shareholders, the intent and effect of this structure may be the opposite: that the offeror may not feel the need to offer as high a price as he otherwise would since minorities may be pressured to sell when the acceptance gets close to 90% for fear of being stuck as shareholders in a private company (as they no longer have the put right which gives them 3 months to decide whether to activate the put after offeror serves notice). 

Also, I think you may have misunderstood my last point. I am aware that the offeror cannot make open market purchases at a price higher than $1.65 without having to revise the offer upwards. All I am saying is that had the offer (which usually has the effect of putting a cap of the share price for at least during the offer period) not been in place, he would not have the oppotunity to acquire such a large amount of shares in the open market without driving the share price up above 1.65.

It is good that you guys bother to go thro this academic exercise of interpreting the wording of the ruling. 
But, to me, the most glaring point is that the offeror is trying to bully his way through, to made the minority shareholders sell them their shares at a cheap.
Since there will be no justice in sight for minority shareholders like us, who spend so much time and effort to research for undervalued stocks to invest in, and be made to sell at a cheap .....

I will be that dissenting 1 Auric share shareholder in the non-listed company
I will be that little stone in his shoe  ... small to ignore but irritating 
My wish : May there be 1,000 1 Auric share shareholders

[hailstorm87]

Some thoughts here from a corporate finance perspective:

The Offeror appears to be relying on an interesting and narrow interpretation of Section 215 of the Companies Act that governs compulsory acquisition. The Act states that the offeror will have the right to compulsory acquisition if the transfers involve 90% of all the shares in that class. And since the offer does not extend to the shares of LCR and Goldstream, there is no actual transfer of these shares, regardless of the fact that they are concert parties. The offer will never result in a transfer of 90% of the shares and thus compulsory acquisition does not apply. The no put right is also a result of the same interpretation.

This is likely to be a rather contentious point going forward as the Offeror seems to be following the letter but not spirit of the law unless this interpretation is as a result of consultation with SIC.

It is also worth noting that while this may be seem to be highly disadvantageous to minority shareholders, the Offeror by virtue of them having lost the right to squeeze minorities out, will likely have to contend with them hanging around should they succeed in delisting the company but not in getting all shareholders to tender their offer shares. Of course, once they are delisted, they can always follow up with another round to take them out.

Last but not least, this exercise also provided SR an opportunity to make large open market purchases and up his controlling stake without chasing up the price too much. This would otherwise have not been possible during normal trading days when liquidity is much lower. A good example would be yesterday, when he managed to acquire 2.325 million shares at $1.65. He would probably need several months to acquire the same amount and drive up share price beyond $1.65 under normal circumstances.

Regarding the compulsory acquisition comments, I don’t think I’ve seen an instance where Section 215 has such a wording in an offer announcement. Nevertheless, I see Section 215 as a provision that is pro-Offeror since it allows the Offeror to take full control of the Company if the dissenting shareholders refuse to ‘give up’ their minority stakes. Since the Offeror is disavowing any right to look to Section 215, I think substantively, it affects the Offeror’s view of the offer more than any thing else. 
Hypothetically, it may result in a higher offer price to incentivize all shareholders to accept the offer since the Offeror cannot rely on a lower price which is sufficient to get 90% of the votes.  So on the price front, it may be ‘pro-minority shareholders’. 

That said and without having all the details of the offer, I do agree that this is a rather unusual result. We should also note that the provision lies in the Companies Act and not the Takeover Code  and I wouldn’t know if the SIC would be able to render the confirmation of the Offeror’s view of Section 215 even if they were consulted on this. 

In sum, I don’t think the minority shareholders are disadvantaged – Section 215 is a sweep up provision designed to allow the Offeror to rip the shares out of the hands of the minority where the requisite 90% of all shares they do not already own is met. What this means is: minority shareholders who are content with holding illiquid shares in a private company are not given the option to. Such minority (stubborn) shareholders usually exist much to the chagrin of the majority shareholders since they just want to hold 100% of the shares of the target; rather than 99.xxx%.   

With regard to the point on driving the shares beyond $1.65, I don’t think the on-market purchase by the Offeror can be beyond $1.65 (since this is the Offer price). If this happens, the OSIM thing will happen again (see para 4 of http://www.mas.gov.sg/News-and-Publicati...l-Ltd.aspx).  Of course, this may be vastly different if what you mean is that he can drive the price up after the offer. 

(not vested)

Actually, there is a difference between the computation of the 90% threshold for the purposes of compulsory acquisition by the offeror (Section 215 (1)) vs that for the purposes of put by the minority shareholders under Section 215 (3). For compulsory acquisition by offeror, the offeror's shares will not be taken into account. That means that had SR used his two existing holding company to make the offer, he would have needed to hit a total of 76.72%+ 90%x(23.28%) = 97.67% just to achieve the right to compulsory acquisition. On the other hand, all the minority shareholders need is for the offeror to end up with 90% in order for the put option to come into effect. The offer announcement in fact explains this as well. You can see that one is obviously easier to achieve than the other. I would definitely deem the put right as more valuable to minority than the CA right to the offeror particularly if the offeror ends up with something between 90% and 97.67%. The current structure and way the offeror has interpreted it thus does disadvantage the minority shareholders. 

I would argue that instead of having to offer a higher price to incentivize shareholders, the intent and effect of this structure may be the opposite: that the offeror may not feel the need to offer as high a price as he otherwise would since minorities may be pressured to sell when the acceptance gets close to 90% for fear of being stuck as shareholders in a private company (as they no longer have the put right which gives them 3 months to decide whether to activate the put after offeror serves notice). 

Also, I think you may have misunderstood my last point. I am aware that the offeror cannot make open market purchases at a price higher than $1.65 without having to revise the offer upwards. All I am saying is that had the offer (which usually has the effect of putting a cap of the share price for at least during the offer period) not been in place, he would not have the oppotunity to acquire such a large amount of shares in the open market without driving the share price up above 1.65.

Just checked on your point raised in Section 215. You're correct in saying that the removal of the S215(3) right would be unfair to minority shareholders. I had initially understood your point to also apply to Section 215(1) which didn't really apply. I do agree if you're looking at the S215(3) perspective since the Dissenting Shareholder cannot have another shot at getting rid of the shares should the offer conditions be met. What that means is: any shareholder has only one shot at getting rid of their shares, and will be stuck if he rejects the offer, realise offer conditions are met, and wants to rid of their share via S215(3) assuming the 90% threshold is met. The consequential impact on price is probably what you've mentioned as well.

I think the Offeree Circular should actually address this - as I've really not seen such an application of S215 before. Alternatively, the Dissenting Shareholders can always ignore the Offeror's interpretation of S215 and enforce their S215(3) rights on their interpretation of S215(3). Should the Offeror refuse, then the investors can just have the different interpretations be brought to court and it will be interesting to see what results from such contest.

As to the driving up of the price point, I agree that the offer puts a 'cap' on the price at $1.65. However, on the flip side, I don't think strategically any large majority shareholder acquires shares through on-market purchases (without a GO) since (i) this may trigger MGO / dealings disclosure requirements; (ii) the price goes up and the cost of acquisition is higher; and (iii) uncertainty on whether they can buy out all the shares anyway. So theoretically, it is true that if the offeror did pure open market acquisitions, the sky's the limit for the price - but I think the reality is, it will not be commercially and realistically feasible. At the end of the day, the Offeror is the counterparty to the trade, so I dont expect him to do any favours. What is a 'fair price' for a buyer will almost always not be a 'fair price' for a seller (and vice versa). 

I think a lot of people are unhappy with the price - I'm sure if it were $2.50, every one would just be happy campers; but ultimately, the Offeror is out to make money as much as you do and will come in with a low offer price if the shares are not receiving much love from Mr Market. I guess all that's left is for the shareholders to wait for the IFA opinion to determine whether the price is fair and reasonable. 

(not vested)

[dydx]

Yesterday (9Feb17), the Riadys managed to mop up another 601,800 (out of the total 742,200 shares transacted) Auric Pacific shares by paying the full-GO price of $1.65, and raised their control to 79.59%....
http://infopub.sgx.com/FileOpen/Dealing%...eID=438544

Based on the pattern of the past 3 market days, there are more and more shares transacted at $1.655 and above, and if this continues, it will mean more pressure on the Riadys and their financial advisers.

It is interesting to note that most of the 214,500 shares transacted so far (as at 10:58AM) this morning were done at $1.655/$1.66.

[weijian]

Silver Creek Capital ("The Offerer") has emphasized what forummer Debronic had earlier mentioned. This indeed seems like a deviation away from the spirit of the act, and may be disadvantageous to minorities. Will the authorities step in to interfere on this "narrow interpretation of the act"?

Related parties already owned 76.7% of the company and so it takes ~13.3% of the remaining shares (or 60% of the outstanding free float before the offer) to sell to The Offerer and force the remaining dissenting minorities to partake in a private company.

http://infopub.sgx.com/FileOpen/Announce...eID=439144

[cif5000]

Very strange indeed.

So LCR and Goldstream will NOT accept the offer but their shares will count towards the Acceptance Condition. 

Have the cake and eat it?

For the avoidance of doubt, the Shares held by LCR and Goldstream, which are the Offeror’s Concert Parties, will count towards the Acceptance Condition in determining whether or not the Offer may be declared unconditional.

As the Offer does not extend to the Shares owned, controlled or agreed to be acquired by LCR or Goldstream, the number of Shares held by the Offeror as at the close of the Offer will not be 90% or more of the total number of Shares. Therefore, Dissenting Shareholders will have no right and are not entitled under Section 215(3) of the Companies Act to require the Offeror to acquire any of their Shares. 

[specuvestor]

^^Come to think of it, can an unconditional offer be selective in not offering to LCR or Goldstream? I didn't read in detail and thought the technicality is that LCR and Goldstream rejected the offer.

This is very interesting indeed. Wonder if the SIC is aware of this

Auric Pacific estimated annual cash flow before changes into working capital for 2016 is $40m. Definitely a cash cow. With a current market cap of $200m at $1.65 and low capex. P/CF = 5, excluding cash, this smells dirt cheap to me.

As of yesterday, they owned closed to 80% of the company, and declared no right of compulsory acquisition of shares and no put right by shareholders. They definitely know what they are doing..

Sent from my SM-G930F using Tapatalk

I was wondering how they can declare no right of CA or put right which is mandated by Companies Act.

The trick is that Silvercreek will own less than 90% of the company thus no trigger. Hence it will be an unlisted public company if opmi don't tender. Interesting move.

[holymage]

Hi VBs, after giving some thoughts, this is my take on the voluntary conditional offer.

Apparently, the market has recognized how undervalued Auric is, after some weak hands with others are betting on a better offer, as transactions on the 13th and 14th are above the offered price of $1.65/share for 2 consective days. This means in 3 years, an investor in Auric at $1.65 could have recoup his investments, assuming 100% capital reduction from its net cash position (P/CF ex cash = 3). Not to mention Auric's rationalization efforts bore fruit and its brands are strong with good consumer loyalty.
1) $200 million market cap at $1.65
2) $80 million in net cash
3) $40 million operating cash flow in 2016 (ttm)

I think these can be considered tell-tale signs of privatization when:
1) Dr Andy Adhiwana started aggressive insider buying since September 2015
2) No dividends were issued in 2016, even though Auric's cash flow doubled in 9M 2016 when compared to 9M 2015. The huge impairments charges to profit are non-cash items, so there is no justification why no dividends are issued.

Here are two scenarios which could play out:

Scenario 1: Riadys acquire less than 90% of Auric, and Auric remains listed
1A) Riadys increase their offer in their subsequent attempt to delist (to erm... save compliance cost due to listing...?)
1B) Riadys give up delisting, continue to grow the company and resume dividend distributions, and be more friendly to minority shareholders
1C) Riadys give up delisting, and do not issue dividends. With 3% of shares acquired since offer announcement, free float is only 20% left.

Scenario 2: Riadys acquire more than 90% of Auric, and Auric is delist
2A) Riadys acquire remaining <10% shares
2B) Riadys do not acquire remaining <10%, may or may not resume dividend distributions
2C) Riadys are granted the Right of Compulsory Acquisition and Dissenting Shareholders are granted Put Right. Although technically, the Offeror is "Silver Creek", all related parties, the Riadys do control more than 90% of Auric and so the Rights are granted.

Will financials statements and dividend distributions be transparent in a private company?

Does anyone has any other thoughts or are any other possibilities that was missed?

[specuvestor]

The 3rd scenario is what they are trying to do: acquire less than 90% of shares yet not fulfilling the SGX listing requirement of >500 shareholders and 10% freefloat, hence mandatory delisting

That's what we are musing about here. Anyone motivated enough to ask SIC?

[YMPL]

^^Come to think of it, can an unconditional offer be selective in not offering to LCR or Goldstream? I didn't read in detail and thought the technicality is that LCR and Goldstream rejected the offer.

This is very interesting indeed. Wonder if the SIC is aware of this

The Offer does not extend to parties acting in concert or deemed to be acting in concert, rather than part of the conditions, or rejection from LCR and Goldstream.

A norm in GO, but the tricky part, is the Compulsory Acquisition (CA) i.e. LCR/Goldstream shares are not aggregated in SCA Section 215(3) compliance?