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"ACCEPT the offer and go for cash" - that was what shareholders of Innovalues Limited were advised to do so in sell-side analyst reports in the wake of the S$331.4 million takeover offer by private equity firm Northstar Advisor.
DBS Vickers Securities said in a note that the offer price of S$1.01 per share values the company at 3 per cent above 12 times FY17 price to earnings (PE) ratio, which is DBS's target valuation multiple for the group since it initiated coverage in February. The offer price is also equal to a trailing 12-month PE of 15.9 times.
"While the offer could have been more attractive, we believe it has come at an opportune time, allowing investors to capitalise on the group's recovery from Q2 FY16, while paring exposure to potential industry headwinds as global economic activity remains subdued," DBS analyst Paul Yong said in the note.
Northstar is offering to acquire Innovalues shares at S$1.01 each via special purpose vehicle Precision Solutions Limited (the offeror) under a scheme of arrangement.
Innovalues shareholders can choose either a full cash payment of S$1.01 per share or a combination of cash and shares of unlisted Precision Solutions Group, which is the parent company of the offeror and also a Cayman-incorporated special purchase vehicle of Northstar.
The latter option comprises S$0.61 in cash and one share of Precision Solutions Group for every Innovalues share. No more than 19.8 per cent of all of Innovalues shares shall be elected for the cash-cum-share option.
At 3.03pm on Thursday, Innovalues shares were up 0.5 per cent at 99 Singapore cents, after 3.24 million shares changed hands.
Analysts felt that minority shareholders should opt for the cash option since the upside in holding unlisted shares of Precision Solutions Group is unclear.
CIMB analyst Ngoh Yi Sin said: "We believe 'Option A' offers investors a clean cash exit opportunity, while 'Option B' may be viable for those who see longer-term potential in Innovalues. Should a competing offer arise, the offeror has the right to launch a voluntary conditional cash offer with similar or better terms, and conditional upon acceptance level of just over 50 per cent."
Maybank Kim Eng noted that the chance of a competing offer is not something that can be predicted with any certainty. But Innovalues' shareholding structure, with 45 per cent of shares in the hands of retail investors, does not preclude a competing offer from succeeding, if the price offered is higher than Northstar's, it said.