Date: April 16, 2021
First published in Lianhe Zaobao on 13 April 2021
In January, semiconductor firm AEM Holdings proposed to buy all the shares of contract manufacturer CEI Limited for S$99.7m or S$1.15 per share. The consideration can be paid either all in cash, or partly in cash combined with AEM shares.
The rationale for the purchase was that the two companies fit well strategically and there are business synergies to be enjoyed if CEI were to become part of AEM.
Apart from the commercial reasons for the deal, CEI shareholders would by now be familiar with the further justifications – their shares were illiquid, the offer price was at a 26.1 per cent premium to the 12-month volume-weighted average price and it was also a three-year high.
If acceptances for AEM’s offer cross the 90 per cent threshold, and AEM is able to exercise its right to compulsorily acquire the remaining shares of CEI, then CEI shareholders who do not accept the offer will still be entitled to the offer price of S$1.15 per share.
So far, most of this would appear to be fairly routine as there have been several similar takeover-cum-privatisation deals conducted over the past few years.
What needs to be emphasized, however, is that in all such proposals, it is important that shareholders make as informed a decision as possible which means taking into account all aspects of the offer before deciding.
What’s the dividend outlook?
In this regard, it is SIAS’s understanding that a key consideration would be the future dividend policies that might be pursued because CEI has traditionally paid out around 90 per cent of its profits.
This high dividend payout may have led some shareholders to hold out in the hope that if the deal does not pass, then CEI will remain listed, and they can continue to enjoy receiving good passive income.
First, shareholders should know that the offer has turned unconditional after acceptances crossed the 50 per cent mark on 19th March. This means that CEI is now a subsidiary of AEM.
Second, because it now comes under AEM’s control, AEM has said it will review and make changes to CEI’s dividend practices. In this connection, shareholders should further note that AEM has also said it will vote against the payment of dividends at CEI’s annual general meeting (AGM) on April 19.
As AEM already has currently control of 81.7 per cent of CEI, this means the proposed payments of a third and final dividend of 0.4 Singapore cents per share and a special dividend of 2.6 cents per share for 2020 will not take place.
In a statement, AEM said it believes it would be in the best interest of CEI that the cash be retained to fund expansion and optimise operational needs.
AEM explained this would not have been the case if AEM had voted in favour of the dividend payouts. If the dividends were to be paid, then AEM would adjust its consideration for the remaining offer shares to S$1.12.
Incidentally, AEM’s dividend policy has been to pay out not less than 25 per cent of consolidated profits. This may be relevant to CEI shareholders who, if they decide to accept the offer, then also decide to opt for the cash-cum-share payment.
Shareholders should also consider the two possible scenarios that might unfold after the offer closes on 26th April.
The first is that AEM secures the necessary minimum acceptances of 90 per cent, in which case it will compulsorily buy out the remaining shares. In this case, CEI will eventually be delisted and its shareholders who did not accept will still receive the S$1.15.
The second is that AEM does not receive the 90 per cent minimum that it needs to buy out the rest. In this case, CEI will remain listed but no dividends will be paid for 2020, and the offer will lapse. What CEI’s future dividend practice might be is not known, though what is known is that it will be dictated by AEM. In addition, the current CEI share price is being supported by the offer. When the offer expires, in all likelihood, shareholders would see the share price fall.
Shareholders should weigh these considerations against their own financial circumstances and make an informed decision.
Founder, President & CEO