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CEO's buyout offer for Delong 'not fair but reasonable': IFA

THE S$7-per-share revived cash offer for steelmaker Delong Holdings is "not fair but reasonable", the appointed independent financial adviser (IFA), PricewaterhouseCoopers Corporate Finance (PwCCF), said on Tuesday morning.

Meanwhile, Delong’s independent directors have recommended that shareholders accept the offer, as the directors agree with the advice and recommendations of the IFA to the directors.

In late July, Delong chief executive officer Ding Liguo relaunched his voluntary cash offer to take the company private at S$7 per share via his vehicle Best Grace Holdings, after an earlier aborted privatisation attempt last year that had breached Singapore’s takeover code.

PwCCF said on Tuesday that the financial terms of the revived buyout bid were not fair, partly because the offer price is at a 40.1 per cent discount to the net asset value (NAV) per share as at June 30, and Delong’s valuation measures are also below the mean and median of those of comparable companies.

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Additionally, the offer price is "unfavourable" as it is lower than what Best Decade, a concert party of Best Grace, had paid for a 15.04 per cent stake in Delong in June 2018, the adviser said. Best Decade bought the shares at the US dollar equivalent of S$7.42 apiece.

However, PwCCF still found the financial terms of the offer reasonable.

This is because the offer price is at a premium of 1.9 per cent to the closing price of S$6.87 as at the last unaffected trading day of Sept 26, 2018, and also represents premiums of 8 per cent, 17.9 per cent, 37.2 per cent and 76.9 per cent above the volume weighted average price of the shares for the respective 1-month, 3-month, 6-month and 12-month periods before Sept 26, 2018.

Other reasons that the adviser gave for finding the offer reasonable included the fact that the offer price is final and will not be revised, and that it is the only offer available to shareholders. The offeror also does not intend to keep Delong listed, which means shareholders will likely find it difficult to sell their shares in the absence of a public market for them, PwCCF said.

The offer was declared unconditional two weeks ago, after Best Grace amassed 90.73 per cent in shares and valid acceptances of the company as at 5.30pm on Aug 15. Accordingly, Best Grace will in due course exercise its rights of compulsory acquisition to buy out all the shares from holders who have not accepted the offer at S$7 apiece.

PwCCF thus advised the independent directors to recommend shareholders accept the offer, for shareholders who: wish to realise their investments in the company at this time but are unable to sell their shares in the open market at a price higher than the offer price; believe that the current market price of the shares may not be sustained after the offer closes; believe that even if Delong remains listed, trading liquidity may reduce materially; and/or believe that a higher offer may not be made.

“Alternatively, such shareholders should sell their shares in the open market if they are able to obtain a price higher than the offer price after deducting related expenses (such as brokerage and trading costs),” PwCCF said on Tuesday.

Shares of Delong were trading flat at S$6.99 as at 9.48am on Tuesday.

The offer closes on Sept 10 at 5.30pm.

In the earlier failed privatisation attempt last September, Mr Ding had made an offer via Best Grace at S$7 per share, valuing Delong at S$771.3 million. But as Best Decade’s stake purchase in June 2018 had taken place less than six months before that offer, the offeror was obliged to extend that purchase price of S$7.42 per share to all shareholders.

The planned privatisation was eventually scrapped, just two weeks after the offer was announced as needed financing could not be secured. The Securities Industry Council also censured Best Grace as well as law firm Shook Lin & Bok and financial adviser PrimePartners Corporate Finance for their roles in the bungled buyout bid.

Stirling Coleman Capital later replaced PrimePartners Corporate Finance, when Best Grace tabled the fresh buyout offer in June this year.

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