SEG International - Lukewarm Response at Close of Offer

THE BUZZ

SEG International (SEGi) announced that the privatization offer tabled by its major shareholder Navis Capital at RM1.714/share and RM1.214/warrant officially closed yesterday.  

OUR TAKE

Unattractive price. In our previous reports, we had stated that the offer of RM1.714/share, which translates into a 14.0x FY12 PER and 12.2x FY13 PER based on an enlarged share base, is rather unappealing. We had also advised minorities to reject the offer as we find the price unattractive vis-à-vis our FV of RM2.19, which values the company at a 18x FY12 PER (which also implies a 15.6x FY13 PER).

Low acceptance despite time extension. According toSEGi’s latest shareholding structure, Navis Capital and Dato’ Sri Clement Hii hold a combined 64.5% stake in the company’s outstanding shares and 39.2% of its existing warrants. As of yesterday, both parties had only received acceptances equivalent to 1.9% for SEGi’s outstanding shares and 29.9% for its existing warrants. Assuming full conversion of the latter, both parties would hold a combined 66.8% stake in SEGi’s enlarged share base. Given the low level of acceptance despite the extension of the closing date from 6 to 20 June, the privatization offer is likely to be called off. We believe this is likely to immediately spur interest in the company as its share price has been somewhat capped by the offer price since Navis Capital first announced its intention to privatize the company on 26April.

BUY. We continue to like SEGi and believe that the emergence of Navis Capital as the single largest shareholder currently will stir up trading interest in the company. As the takeover offer has lapsed without garnering the level of acceptance needed to privatize the group, we believe this could lift trading sentiment on the stock. Hence, we maintain our BUY call, at an unchanged FV of RM2.19, based on a 18x FY12 PER and a fully enlarged share base of 748.4m shares.

Source: OSK