In a circular to shareholders yesterday, AmInvestment Bank said the offer price of 38 sen is higher than the ascribed equity value of 24 sen to 28 sen per share and represented a premium of 10 sen to 14 sen
KUALA LUMPUR: The weak response the major shareholders of Hovid Bhd have received for their offer to privatise the healthcare provider and pharmaceutical company suggests that the offer price of 38 sen per share is too little.
After the first cut-off date on Nov 20, Fajar Astoria Sdn Bhd (FASB), the company proposing to take Hovid private, received an additional 13.16% acceptance and another 8.57% that has not been verified.
In total, it has so far received 55.46% acceptance, way below the 90% acceptance level that FASB seeks to take the company private.
FASB is offering 20 sen for each Hovid warrant and the acceptance so far is 71.64%.
“If the offeror wants 90%, the price has to be more attractive because the acceptance is far too low compared to the 90% required after the first round,” said an investment banker.
FASB is a private vehicle belonging to Hovid’s founder and prime mover David Ho and private equity firm TAEL.
Ho together with the private equity partner obviously feel that the market is undervaluing Hovid, a company well established in the local pharmaceutical industry. Apart from manufacturing its own drugs, it also does work contract manufacturing for other drugmakers.
Another issue that makes this privatisation uncertain is the uncertain cut-off level that would make the offer unconditional.
FASB has stated the offer will only become unconditional if the acceptance level hits 90%.
Alternatively, FASB reserves the right to review the level of acceptance to a lower level as long as it is not less than 50% of the company.
What this means is Ho and TAEL have the option of reducing the acceptance level to below 90% to make the offer unconditional.
It also means that those who have accepted the offer so far have to wait until Dec 4, which is the new date for closing of the exercise to know for sure if their acceptance at 38 sen per share and 20 sen for the warrants have been received.
An investment banker said Hovid high threshold of 90% for the offer to be unconditional made for a difficult target, considering that the major shareholder had only 33.72% equity interest before the start of the exercise.
“The additional condition to review the level of acceptance to make the offer unconditional makes the exercise more complicated. It is not a normal clause,” said the banker.
“It causes shareholders who are undecided to wait on the side lines to see whether privatisation can be unconditional. Generally, they tend to decide only after seeing if the offer becomes unconditional because it brings about certainty,” said the banker.
In the circular to shareholders, the company had stated that the offer provides an opportunity for shareholders to exit Hovid, which made losses in the latest financial year, due to a challenging economic environment coupled with the company facing issues such as revocation of manufacturing license.
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