Share prices of both have been falling in the market, raising the question of whether investors are feeling nervous about the impending merger between the two companies. Sunway Holdings and Sunway City closed at rm2.14 and rm4.20m both counters are trading at discount to their respective offer prices of rm2.60 and rm5.10 under the offer by Sunway Sdn Bhd (SSB).
To recap, in Nov 2010, SSB proposed to take over the assets and liabilities of Sunway City for rm5.10 a share and Sunway Holdings for mr2.60 a share. In addition to that, SSB also offered to buy Sunway Holdings and SunCity warrants at rm1.50 and rm1.29, respectively.
The proposed deal will be done via the issuance of new shares in SSB valued at rm2.80. Eighty percent of the offer will be settled by the new shares and the balance in cash. In addition to that, SSB will also issue new warrants for all Sunway Holdings and SunCity shareholders on the basis of one SSB warrant for every five shares.
Does the recent selling pressure reflect the market’s cap doubts about the merger?
Industry observers in general are positive on the proposed merger, citing improved liquidity, a stronger balance sheet and synergistic values. The merger of the two companies will result in a bigger and better capitalized entity with a potential market cap of over rm3.5 billion. In addition, operations and profit margins could improve, as well as bringing about cost savings. The offer is good opportunity for investors to move to a larger and more liquid company.
So when is the right time to buy the stocks? The respective offer prices might not be the right price for the stocks, or an indication of their fair values or where they should be trading at. This is because the values they are swapping into are relative values into a new entity. The relative values and the ultimate valuation of the merged company matter most, rather than determined offer prices.
Ultimately, the valuation of the merged entity is of paramount importance to investors. But is the merged unit worth over rm3.5 billion in market cap?
The EGM to vote on the proposed merger is only expected to be held in April 2011 or May 2011. A 50% plus one share of the minorities would have to vote in favor of the merger for the deal to go through. When that happens, both Sunway Holdings and SunCity will be delisted and the newly merged entity will need to seek a new listing on Bursa Malaysia , which is subject to approval.
The listing is expected to happen in July or Aug 2011. Until then, there is no certain way to determine what assets and liabilities will be assumed under the new entity. As such, the best way for investors to enter into the merged company at the moment is to look at the discount on the two stocks relative to their offer prices for any possible arbitrage opportunity.
As of now, both counters’ 17.6% discount to their respective offer prices means the market has been quite efficient and there is no arbitrage between the two prices. This could indicate possible arbitrage opportunities between the two stocks, as well as the cheaper entry into the merged Sunway group.
No comments:
Post a Comment