Pangolin fund says it's close to getting 10% of votes to block Challenger exit offer

Singapore

A MINORITY shareholder in Challenger Technologies said on Wednesday it is close to obtaining votes from the 10 per cent of shares required to block Digileap Capital's S$183 million exit offer for the electronics retailer.

Singapore-based fund manager Pangolin Investment Management, which owns a 2.94 per cent stake in Challenger, has received e-mails from fellow minority shareholders pledging to vote against the exit offer, said James Hay, director at Pangolin, in response to media queries. These amount to 9.8 per cent of Challenger's shares, including Pangolin's holding, he said.

The delisting will not proceed and the exit offer will lapse if holders of at least 10 per cent of Challenger shares vote against it at the June 27 extraordinary general meeting (EGM).

Mr Hay's remarks came shortly after the independent financial adviser, Deloitte & Touche Corporate Finance, said on the same day that Digileap's offer is "fair and reasonable", in a letter appended to the delisting circular. Challenger's independent directors also recommended unanimously that shareholders accept the deal and vote in favour of the delisting at the EGM, on Deloitte's advice.

Challenger announced the proposed voluntary delisting in March, with Digileap making a cash exit offer for all Challenger shares at 56 Singapore cents apiece. The price values the company at S$183 million.

Digileap does not intend to revise the offer price, it said on Wednesday.

The offer price of 56 cents is before the final dividend of two cents for fiscal 2018 was paid out on June 3.

It is above the share's highest closing price in four years from May 9, 2014, and represents a premium of 5.7 per cent over the last traded price of 53 cents on March 15, the last full day of trading prior to Challenger's March 18 trading halt. It is also more than double the company's net asset value per share of 27.83 cents as at March 31.

Pangolin had earlier pressed for a higher offer price and dividend payout, in a report in March and during Challenger's annual general meeting in April. The fund manager found the price too low and unfair for minority shareholders, and said Challenger should be valued by its cash flow to shareholders, in which case the fair value of the shares should be at least S$1.15, more than double the 56 cents offered by Digileap.

On Wednesday, Challenger's chief executive officer Loo Leong Thye, himself part of the offeror consortium as a director of Digileap, said he began exploring the possibility of delisting after receiving two unsolicited offers from Pangolin to sell its stake.

The first offer was received in October 2017 when Pangolin offered to sell its holding at 43.5 cents per share; the second offer was received in March 2018 and did not state the price at which Pangolin would be willing to sell, Mr Loo said. "Instead of doing a transaction with a single shareholder, I wanted to make an offer to all shareholders and so began looking for a partner to start this process."

In response to Mr Loo's comments, Mr Hay said that in October 2017, Pangolin was merely "sounding out" Challenger as to whether it had a buyer, as part of the fund's day-to-day operations in weighing any investment, but did not make a firm offer.

After deciding not to sell its stake, Pangolin recommended to Challenger the ways in which the retailer could deploy its excess cash for the benefit of all shareholders, because Pangolin was frustrated with the "drag on shareholder returns as a result of Challenger holding too much cash and non-core investments", Mr Hay said. The group had S$66.2 million in cash and cash equivalents as at March 31, 2019.

SGX said on June 4 that it has no objection to the proposed delisting.

Digileap is 70 per cent owned by the Loo family, and 30 per cent by Dymon Asia Private Equity.

The Loo family and Ng Leong Hai, who together hold 78.64 per cent of the total shares, have given irrevocable undertakings to vote in favour of the delisting and accept the exit offer.

The exit offer closes on July 11.

DBS is the financial adviser to Digileap for the delisting and exit offer.

In the market on Wednesday, Challenger closed down one Singapore cent at 54.5 cents.