How will partial offer for Procurri play out?

Singapore

TWO shareholders holding a combined 25 per cent stake in Procurri have indicated that they will vote against private equity firm Novo Tellus' partial offer for the IT lifecycle services and data centre equipment provider.

But the offer can still go through if other investors owning 22 per cent tender their shares for acceptance.

What could thicken the plot now is if one or both dissenting shareholders decide to mount a counter offer.

Novo Tellus has itself also said that it will not revise the offer price of S$0.365 per share unless a competitive situation arises.

Procurri shares have not traded above the offer price of S$0.365 since the offer was announced on March 15, even though trading volume has surged considerably. Its shares ended half a cent lower at S$0.35 on Thursday.

Procurri has received a letter from ICH Gemini Asia Growth Fund indicating that it plans to vote against Novo Tellus' partial offer. ICH Gemini owns about 3.9 per cent of the tech company.

This came after Declout, a substantial shareholder which owns 21.2 per cent of Procurri's shares as at April 13, said it intended to vote against the partial offer, too.

The partial offer was launched to acquire 27.9 per cent of Procurri's shares to make up a majority stake of 51 per cent.

Novo Tellus held 19.5 per cent of Procurri as at the offer announcement date. A concert party, investment firm ACT Holdings, backed by Novo Tellus co-founder and non-executive director James Toh, held another 9.2 per cent of Procurri, but can only tender 3.6 per cent for acceptance.

This leaves 71.1 per cent of shares that Novo Tellus and its concert parties do not hold, in the hands of independent shareholders.

Procurri's management - holding a collective 11.8 per cent of the firm - has agreed to tender half its shares, or 5.9 per cent, in favour of the offer.

That leaves another 22 per cent in acceptance that the offeror will require.

Novo Tellus and ACT Holdings became the largest shareholders of Procurri with a combined 29.6 per cent stake in the firm in early 2019, after they exercised call options to purchase about 36 million shares from Declout and two other shareholders.

Procurri helps enterprises transition to the cloud with its services such as third-party maintenance, IT asset disposition and cost-effective enterprise hardware. Its platform acts as a global aggregator for businesses to buy, dispose and manage the lifecycle of enterprise hardware, including services such as maintenance, leasing and rental, in more than 100 countries.

Novo Tellus wants to increase its stake in Procurri to more actively help the company create long-term shareholder value. It said that Procurri faces a challenging transition with a difficult short-term market outlook and uncertain market conditions aggravated by Covid-19, and needs to invest to upgrade its operations and systems to stay competitive. Procurri's earnings prospects may therefore be depressed, and it may not be able to pay dividends in the next few years.

DeClout, a holding company for technology firms, had acquired a 50.1 per cent stake in Procurri in 2013 and spun it off on the mainboard in 2016 at S$0.56 per share. Declout still lists Procurri on its website as a "success story".

But the two firms have had their fair share of friction. For instance, in 2018, DeClout blocked Procurri from renewing a mandate to issue and allot new shares, as it had taken a S$10 million loan against these shares and wanted to avoid triggering an event of default. Procurri's management said then that it would work towards diversying its shareholder base.

Since the offer was announced, Declout has been buying Procurri shares aggressively from the market, starting from a position of about 14 per cent.

When asked what would be a fair price for Procurri, a DeClout spokesperson said: "As a founding shareholder of Procurri, we believe that the offer price from Novo Tellus substantially undervalues Procurri. To put it into perspective, the offer price is a fraction of Procurri's IPO price in 2016, whereas Procurri's topline has grown by more than 70 per cent in the same period, and it remains profitable during Covid-19."

It added that there should also be a control premium associated with taking over a majority of Procurri. In FY20, Procurri reported a 28.6 per cent net profit drop to S$2.7 million, on the back of a 5.5 per cent rise in revenue to S$233.5 million.

Asked if it has plans to make a counter offer, Declout said it is evidently not alone in its view that the offer price is too low, and believes that the offer will not gather enough support eventually.

"We remain open to all options that value add to our business and investments.

Going forward, as a long-term shareholder, we look forward to engaging with the Procurri board and management to unlock further value for all stakeholders."

Takeover rules for partial offers prevent the offeror from accumulating more Procurri shares from the open market, but one lever it can pull is to extend deadline on May 3, 5.30pm, should it fail to get the desired acceptances by that first close date.