Offer for Delong 'not fair but reasonable': IFA

Singapore

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

Meanwhile, Delong's independent directors agreed with the advice and recommendations of the IFA to the directors and recommended that shareholders accept the offer.

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 aborted privatisation attempt at the same price that breached Singapore's takeover code last September.

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.

Furthermore, the offer price is "unfavourable" as it is below what Best Decade, a concert party of Best Grace, paid for a 15.04 per cent stake in Delong in June 2018, the adviser said. Best Decade paid the US dollar equivalent of S$7.42 per share.

Nonetheless, PwCCF 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 on Sept 26, 2018, and at premiums of 8 per cent, 17.9 per cent, 37.2 per cent and 76.9 per cent above the volume weighted average price for the respective one-month, three-month, six-month and 12-month periods before Sept 26, 2018.

Other reasons included the fact that the offer price is final, and that it is the only offer available to shareholders. The offeror also plans to de-list Delong, which means shareholders are likely to find it difficult to sell their shares in the absence of a public market for them, PwCCF said.

The company announced two weeks ago that Best Grace had amassed 90.73 per cent in shares and valid acceptances of the company, allowing the offeror to exercise its right of compulsory acquisition under the Companies Act. The new delisting rules by the Singapore Exchange (SGX) will not apply, as the offeror will end up holding 100 per cent of the company's issued shares after the compulsory acquisition.

SGX changed its rules in July, requiring voluntary delisting offers (including scheme of arrangements and general offers) to be both "fair" and "reasonable" in the IFA's opinion.

PwCCF on Tuesday advised the independent directors to recommend shareholders accept the offer, for shareholders who: wish to realise their investments in Delong at this time but are unable to sell their shares in the open market at a price above 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 added.

Shares of Delong closed flat at S$6.99 on Tuesday.

The offer closes on Sept 10.