Date: February 17, 2021
Minority independent shareholders of plastic component suppliers Sunningdale Precision have until 3pm today to vote on the offer made by the company’s chairman Koh Boon Hwee via a holding company named Sunrise Technology Investment Holding (STIH) to take Sunningdale private.
Since this is an offer by a majority shareholder and it is by way of a scheme of arrangement, only independent shareholders are allowed to vote, so it is crucial as far as Sunningdale’s future is concerned that as many such shareholders as possible cast their vote before today’s deadline. Before that however, a recap of the salient points would be useful.
Reason for the offer
The offeror has said Sunningdale’s customers are managing risk actively by adjusting supply chains away from a concentrated production in Asia towards more diversified regional and local production worldwide.
It believes that in order to respond to this shift, Sunningdale will need to make significant long-term investments to diversify and increase its manufacturing footprint beyond Asia – which will likely result in substantial upfront cash outlay that may generate little near-term payoff. This in turn may increase the likelihood of more volatility to earnings and free cash flow generation over the near term.
The reason for wanting to privatize the company is therefore essentially to gain the necessary flexibility to survive in a fast-changing business environment that is being impacted by the COVID-19 pandemic.
Is the price fair?
Thanks to objections from activist fund managers Quarz who argued that the original offer price S$1.55 per share was not reasonable, STIH subsequently raised the offer to S$1.65.
Sunningdale and offeror Sunrise Technology Investment Holding said in a joint statement that the final offer of $1.65 represents a 42.6 per cent premium over the volume-weighted average price of the Sunningdale shares for the last year.
They also said the final offer provides a premium greater than any closing price of Sunningdale’s shares in the 12-month period prior to and including Sept 9, 2020 – the date the company announced a possible transaction involving its shares.
The scrip option
With the revised and final offer, scheme shareholders can choose between receiving cash or 1,650 shares in STIH at 0.1 cent each.
Providing a scrip option in a privatisation offer is uncommon. We are aware of two other transactions in the last 5 years that provided shareholders with a similar option (Health Management International (2019) and Innovalues (2017)).
This was done to give shareholders a choice – those who believe in the long-term future of Sunningdale can remain invested, with up to a 30% collective stake in STIH.
A comparison with Fu Yu
At an 8 Feb virtual dialogue session moderated by SIAS, the offeror drew a comparison between Sunningdale and Fu Yu, which it said is the closest comparable company that was listed on SGX.
In January 2021, the co-founders of Fu Yu sold approximately a 30 per cent. stake of Fu Yu to Pilgrim Partners Asia at S$0.26 per share. At this price, the implied price-earnings ratio (PER)and EV/EBITDA (enterprise value/earnings before interest, taxes, depreciation and amortisation) was about 13 times and 3.6 times respectively, which is lower than the PER of 26 times and EV/EBITA of 5.8 times implied by the $1.65 per share offer for Sunningdale.
At this session, the point was also made that between 2016 and 2020, the average daily volume traded of Sunningdale’s shares was consistently less than 0.6% of the total outstanding shares in the company. In other words, the company’s shares are not actively traded, in which case the offer presents shareholders with an opportunity to cash out.
The bottom line
By now, SIAS hopes that independent shareholders are familiar with all of the above. At stake is the future of Sunningdale and whether it remains a listed company or not. Whether you are for or against the deal, we urge you to cast your vote by 3pm today.
SIAS has recently received calls from a few Scheme Shareholders who wish to amend their proxies. These shareholders must send in the duly executed proxy to firstname.lastname@example.org before 3 pm on 17 February and such proxy must state in writing “This proxy supercedes all prior proxies submitted by this shareholder”.
Watch the replay of the SIAS – Sunrise – Sunningdale Virtual Dialogue Session here