Analyst were mixed on Tan Sri Quek Leng Chan’s mandatory general offer (MGO) of RM2.05 per share for Southern Steel Bhd (SSB) with at least one research report citing that long-term shareholders such as Datuk Dr Tan Tat Wai may not accept the offer.
Last Friday, Signaland, a special purpose vehicle linked to Quek, has served notice to acquire all the shares in does not already own in SSB following its acquisition of a 27% stake in the steel manufacturer from NatSteel Holdings Pte Ltd. THe acquisition from NatSteel increased Signaland’s interest in SSB to 70.25%.
Prior to the announcement made after trading hours last Friday, SSB’s share price had shot up 13 sen or 6.81% to end the day at RM2.04. Yesterday, SSB’s share price eased three sen to close at RM2.01.
HwangDBS Vickers Research in a report yesterday, viewed the offer as too low but OSK Research described it as reasonable.
OSK Research analyst Ng Sem Guan said in his report yesterday that the offer was reasonable but might not be accepted by long-term investors.
The general offer at RM2.05 per share implies a 1.14 times price-to-book value as at March 31 and represents a 5.7% premium to Ng’s original target price of RM1.94.
“In the meantime, we would suggest that investors, especially those with a short-term investment horizon, to accept the offer or dispose of the shares in the open market,” Ng wrote.
“Nevertheless, we suspect that long-term investors like Southern Steel co-founder Datuk Dr Tan Tat Wai, who owns 7.9% in the company, may deem the offer price too low and are unlikely to accept the offer,” added Ng in the report.
HwangDBS Vickers described the RM2.05 offer price as too low and that the valuation should be higher given the expected strong steel demand in the medium term.
“Minorites should not accept (the) offer,” the report said.
It added that although SSB’s margins and profits would be weaker in the second half of 2010 due to due to higher raw material costs, the anticipated improvement in steel demand from accelerating local construction projects would support earnings.
“And with a large stake of 70.25% now held by a single shareholder — Hong Leong Co (Malaysia) Bhd (HLCM) — it would be easier for SSB to execute any strategic moves,” said the research house.
There could also be more business alliances between SSB and HLCM’s building materials and property development units in future, it added.
Meanwhile, SSB said in its announcement to the stock exchange last Friday: “The board does not intend to seek an alternative person to make a takeover offer for the offer shares.”
Signaland had on July 16 acquired 113.38 million shares or 27% at RM2.05 per share for RM232.43 million from NatSteel Holdings Pte Ltd.
Prior to the latest acquisition, the offeror and persons acting in concert owned 181.25 million shares or 43.21% stake. After the acquisition, their interest rose to 70.24%, triggering the MGO.
At the end of the exercise, should the offeror and persons acting in concert hold more than 90% of the listed shares, SSB will be delisted. However, if the final shareholding is between 75% and 90% of the listed shares, the offeror would “explore options or proposals to rectify any shortfall in the public shareholding spread”, according to the offer letter from Signaland, issued by Hong Leong Investment Bank Bhd.
This article appeared in The Edge Financial Daily, July 20, 2010.
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