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How to know if a delisting offer is fair?
Shareholders sometimes are presented with an offer to sell their shares but they may hesitate to make a decision to accept it because they don't know if the offer is a fair one.
Just today, there is an example we can use - to run through a process which you may use should you encounter a delisting offer in the future.
TTJ Holdings (SGX:K1Q) $TTJ (K1Q.SG)$ is a structural steel fabrication company and the chairman is offering S$0.23 to buy shares in which he doesn't own.
Most shareholders would naturally compare to the price that they have bought the shares for, against the offer price to see if there is a profit to be made.
It is also common for the Offer document to compare the Offer price against the trading price history of the stock. They will use the term 'volume weighted average prices' (VWAP). For example, TTJ said the Offer price was 29.4% higher than the 12 months VWAP.
The first thing is to verify the price history via a stock chart. The highest price TTJ ever traded was S$0.406 (adjusted for dividends) in 2016 and in fact, the stock traded above the Offer price about half the time. Taking the recent 1 to 2 years of trading history tells you that the data is selective and the Offer is an opportunistic one.
But price is still meaningless without a value to compare to. So the next thing is to establish the valuation of the company. There are of course many different ways to value a company and valuation is an opinion.
TTJ is a straightforward case as we can just use the book value to compare since the value of the company is well captured in its assets - warehouses and fabrication plants for the steel, cash, receivables and contracts to produce the steel products.
TTJ's book value per share was S$0.3679 as at 31 Jan 2022. The Offer price of S$0.23 is lower than the value and this further shows that the Offer is opportunistic.
The third thing is to see if the company fortunes are improving or worsening in the near future. This is because sometimes the outlook can be bad and the value of the company may deteriorate so a discount to the present value is warranted.
For example, the Offer document said that the construction sector is expected to remain below pre-pandemic levels throughout 2022. Prices of materials are going up due to inflation. So it is saying that the Offeror is relieving shareholders' pain in case the share price goes down in the future due to this sluggish outlook.
My views differ in the sense that construction activities in Singapore have to pick up because it has slowed down too much during Covid. HDB BTO waiting time has lengthened and there are more MRT and highway lines to build. Not forgetting private property sector is booming too. Singapore has already opened up and is ready to bring up the level of economic activities. So I think the near future is rosier for TTJ.
And with regards to rising steel prices, TTJ should have no issues passing down the costs to the customers. They don't sell steel, they sell the fabrication service. So they will just mark up from wherever the steel prices are.
But I am not an insider in TTJ so I might be wrong. What we are doing here is to demonstrate how shareholders should exercise their critical thinking to verify what the Offeror say and not blindly take everything as the truth.
Lastly, look at the Offeror's stake to determine his chances of delisting the company. The Offer document said that the Offeror holds 84.4% stake in TTJ. He just needs another 5.6% (cost S$4.5m) to cross the 90% mark for the delisting to happen.
This would also mean that the Offer, though unfair in my view, is likely to go through. It will take a concerted effort by the minority shareholders to act against the delisting which is difficult because they don't talk to one another or understand the issues highlighted above.
Hopefully this example can give you some pointers on what to think about when evaluating a delisting offer which you might receive in the future.
Just today, there is an example we can use - to run through a process which you may use should you encounter a delisting offer in the future.
TTJ Holdings (SGX:K1Q) $TTJ (K1Q.SG)$ is a structural steel fabrication company and the chairman is offering S$0.23 to buy shares in which he doesn't own.
Most shareholders would naturally compare to the price that they have bought the shares for, against the offer price to see if there is a profit to be made.
It is also common for the Offer document to compare the Offer price against the trading price history of the stock. They will use the term 'volume weighted average prices' (VWAP). For example, TTJ said the Offer price was 29.4% higher than the 12 months VWAP.
The first thing is to verify the price history via a stock chart. The highest price TTJ ever traded was S$0.406 (adjusted for dividends) in 2016 and in fact, the stock traded above the Offer price about half the time. Taking the recent 1 to 2 years of trading history tells you that the data is selective and the Offer is an opportunistic one.
But price is still meaningless without a value to compare to. So the next thing is to establish the valuation of the company. There are of course many different ways to value a company and valuation is an opinion.
TTJ is a straightforward case as we can just use the book value to compare since the value of the company is well captured in its assets - warehouses and fabrication plants for the steel, cash, receivables and contracts to produce the steel products.
TTJ's book value per share was S$0.3679 as at 31 Jan 2022. The Offer price of S$0.23 is lower than the value and this further shows that the Offer is opportunistic.
The third thing is to see if the company fortunes are improving or worsening in the near future. This is because sometimes the outlook can be bad and the value of the company may deteriorate so a discount to the present value is warranted.
For example, the Offer document said that the construction sector is expected to remain below pre-pandemic levels throughout 2022. Prices of materials are going up due to inflation. So it is saying that the Offeror is relieving shareholders' pain in case the share price goes down in the future due to this sluggish outlook.
My views differ in the sense that construction activities in Singapore have to pick up because it has slowed down too much during Covid. HDB BTO waiting time has lengthened and there are more MRT and highway lines to build. Not forgetting private property sector is booming too. Singapore has already opened up and is ready to bring up the level of economic activities. So I think the near future is rosier for TTJ.
And with regards to rising steel prices, TTJ should have no issues passing down the costs to the customers. They don't sell steel, they sell the fabrication service. So they will just mark up from wherever the steel prices are.
But I am not an insider in TTJ so I might be wrong. What we are doing here is to demonstrate how shareholders should exercise their critical thinking to verify what the Offeror say and not blindly take everything as the truth.
Lastly, look at the Offeror's stake to determine his chances of delisting the company. The Offer document said that the Offeror holds 84.4% stake in TTJ. He just needs another 5.6% (cost S$4.5m) to cross the 90% mark for the delisting to happen.
This would also mean that the Offer, though unfair in my view, is likely to go through. It will take a concerted effort by the minority shareholders to act against the delisting which is difficult because they don't talk to one another or understand the issues highlighted above.
Hopefully this example can give you some pointers on what to think about when evaluating a delisting offer which you might receive in the future.
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Emily : Valuable infor! Thanks for sharing![[undefined]](https://static.moomoo.com/nnq/emoji/static/image/default/default-black.png?imageMogr2/thumbnail/36x36 "undefined")