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Monday, 15 March 2010
Arbitrage potential in Swissco takeover
Every now and then, market imperfections throw up arbitrage potential from corporate activity. One such opportunity may just be emerging in the ongoing takeover of offshore services specialist Swissco International by Catalyst-listed C2O Holdings.
Every now and then, market imperfections throw up arbitrage potential from corporate activity. One such opportunity may just be emerging in the ongoing takeover of offshore services specialist Swissco International by Catalyst-listed C2O Holdings.
In October last year, Swissco announced that its controlling shareholder Yeo Holdings Private Limited (YH) - comprising founder Yeo Chong Lin and his son Alex Yeo Kian Teong - were selling their entire 54.75 per cent stake in the company to C2O for about $96.10 million. The deal was struck at 89 cents a share for their 107.98 million shares, which was a 22 per cent premium over Swissco’s net tangible asset value of 73 cents based on its published financial results as at June 30, 2009.
While the elder Yeo took cash for his 75 per cent portion of Yeo Holdings’ Swissco shares, Alex Yeo opted for shares in C20 at a ratio of 1.7917 new shares per Swissco share, indicating that he would be among the directors the company.
Despite obtaining a waiver from making a general offer for the entire outstanding Swissco shares, early this month, C2O placed on the table two alternative offers to the remaining Swissco shareholders.
The first option is 1.7917 new shares of C2O for each Swissco shares. The second is a payout of 89 cents per Swissco share. Or it could be a combination of both.
But the price movements of these two counters have thrown up an interesting scenario, not just for Swissco shareholders, but for C2O as well.
Applying the 1.7917 conversion ratio to C2O’s current price of 45 cents, one derives an imputed value of 80.6 cents for Swissco’s shares. Swissco is currently trading at 87.5 cents.
On the other hand, applying this same conversion ratio to offered cash price of 89 cents per Swissco share, one gets an imputed value of 49.6 cents per C2O share. And this counter closed at 45 cents yesterday.
Just for a bit of useful background, C2O is an offshore and marine company controlled by KS Tan. For those who don’t recognise the name, this is the man who originally founded KS Energy, which was subsequently sold to Indonesian businessman Kris Wiluan in 2006.
Mr. Tan currently controls 9.5 per cent of C2O.
After converting some outstanding options, C2O has now accumulated some 56 per cent of Swissco, which is well beyond the 51 per cent majority shareholding.
That being the case, Mr. Tan and his associates are unlikely to favour their company coughing out more money for a company they already control. In all likelihood, they would prefer that Swissco shareholders swap their shares for C2O shares at a ratio of 1.7917, thus saving the company precious cash which would come in handy as it expands its presence in the marine and offshore space.
But given the way the numbers stand, few Swissco shareholders are likely to opt for the share swap. For them to do so, C20 has to climb to 50 cents or higher. Even at 50 cents, some Swissco shareholders may still opt for the cash, given prevailing market risks.
But given Mr. Tan’s track record, one would not bet on this as the most likely outcome.
In the past, he has proven to be a savvy investor with a knack for picking up undervalued assets way before the market realises their potential.
He acquired a strategic stake in listed Ramba at 11.5 cents in August, which today is trading at around 48 cents. He paid 16.5 cents for a stake in Ying Li, which today is around 51.5 cents. He is also said to have bought up smaller stakes in various other companies such as Ezra, Ezion and Ho Leong, which have run up some 300 per cent since his purchase.
Will this ‘Midas’ touch still carry through for C2O?
It remains to be seen.
When this exercise is over, Swissco’s assets will be owned under listed C20. It will be interesting to see where Mr. Tan and his associates - who will include Alex Yeo - plan to sail this ship. But given their track record, investors could be in for a nice ride.
Meanwhile, in an interesting development which suggests that some investors are already spotting arbitrage potential, European fund management outfit Santos this week purchased some 12 million Swissco shares at up to 87.5 cents.
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Arbitrage potential in Swissco takeover
By VEN SREENIVASAN
11 March 2010
Every now and then, market imperfections throw up arbitrage potential from corporate activity. One such opportunity may just be emerging in the ongoing takeover of offshore services specialist Swissco International by Catalyst-listed C2O Holdings.
In October last year, Swissco announced that its controlling shareholder Yeo Holdings Private Limited (YH) - comprising founder Yeo Chong Lin and his son Alex Yeo Kian Teong - were selling their entire 54.75 per cent stake in the company to C2O for about $96.10 million. The deal was struck at 89 cents a share for their 107.98 million shares, which was a 22 per cent premium over Swissco’s net tangible asset value of 73 cents based on its published financial results as at June 30, 2009.
While the elder Yeo took cash for his 75 per cent portion of Yeo Holdings’ Swissco shares, Alex Yeo opted for shares in C20 at a ratio of 1.7917 new shares per Swissco share, indicating that he would be among the directors the company.
Despite obtaining a waiver from making a general offer for the entire outstanding Swissco shares, early this month, C2O placed on the table two alternative offers to the remaining Swissco shareholders.
The first option is 1.7917 new shares of C2O for each Swissco shares. The second is a payout of 89 cents per Swissco share. Or it could be a combination of both.
But the price movements of these two counters have thrown up an interesting scenario, not just for Swissco shareholders, but for C2O as well.
Applying the 1.7917 conversion ratio to C2O’s current price of 45 cents, one derives an imputed value of 80.6 cents for Swissco’s shares. Swissco is currently trading at 87.5 cents.
On the other hand, applying this same conversion ratio to offered cash price of 89 cents per Swissco share, one gets an imputed value of 49.6 cents per C2O share. And this counter closed at 45 cents yesterday.
Just for a bit of useful background, C2O is an offshore and marine company controlled by KS Tan. For those who don’t recognise the name, this is the man who originally founded KS Energy, which was subsequently sold to Indonesian businessman Kris Wiluan in 2006.
Mr. Tan currently controls 9.5 per cent of C2O.
After converting some outstanding options, C2O has now accumulated some 56 per cent of Swissco, which is well beyond the 51 per cent majority shareholding.
That being the case, Mr. Tan and his associates are unlikely to favour their company coughing out more money for a company they already control. In all likelihood, they would prefer that Swissco shareholders swap their shares for C2O shares at a ratio of 1.7917, thus saving the company precious cash which would come in handy as it expands its presence in the marine and offshore space.
But given the way the numbers stand, few Swissco shareholders are likely to opt for the share swap. For them to do so, C20 has to climb to 50 cents or higher. Even at 50 cents, some Swissco shareholders may still opt for the cash, given prevailing market risks.
But given Mr. Tan’s track record, one would not bet on this as the most likely outcome.
In the past, he has proven to be a savvy investor with a knack for picking up undervalued assets way before the market realises their potential.
He acquired a strategic stake in listed Ramba at 11.5 cents in August, which today is trading at around 48 cents. He paid 16.5 cents for a stake in Ying Li, which today is around 51.5 cents. He is also said to have bought up smaller stakes in various other companies such as Ezra, Ezion and Ho Leong, which have run up some 300 per cent since his purchase.
Will this ‘Midas’ touch still carry through for C2O?
It remains to be seen.
When this exercise is over, Swissco’s assets will be owned under listed C20. It will be interesting to see where Mr. Tan and his associates - who will include Alex Yeo - plan to sail this ship. But given their track record, investors could be in for a nice ride.
Meanwhile, in an interesting development which suggests that some investors are already spotting arbitrage potential, European fund management outfit Santos this week purchased some 12 million Swissco shares at up to 87.5 cents.
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