Oakwell has announced a Letter of Intent(LOI) to sell away its whole distribution business to Sonepar Asia Pacific for a price consideration of $70 million and will increase to $74.5 million if there is no write-off of assets in FY2012.
My recommendation:
Unless you have deep pockets and the patience to wait, Oakwell is not for you.
"The Purchaser, Sonepar Asia Pacific Limited, is a company incorporated in Hong
Kong with an issued and paid up capital of HK$3,800,000,000 and is part of the
Sonepar group. Based on public records, the Sonepar group is in the logistics
business and the distribution of electrical equipment. The Sonepar group has
presence in 36 countries." From SGX announcement.
How do i view this ?
- Oakwell is trading below 8cts most of the time during the last 5 years. Asset as of the announcement on 23rd May stands at 4.42 cts. Current offer will increase the assets of Oakwell from 4.42cts in cash & business, to 11.6cts comprises of all cash. It does make sense that Oakwell management sells away this business for a premium of 162% over its asset.
- Under the LOI, the deal is to be concluded within 12 mths of the announcement, which is by 23rd May 2014. Unless the market turned sour, this deal is very likely to go through.
- Under SGX listing requirements, a company with only cash as assets and no significant business, will not meet the requirements. As such company will need to find a new business or provide an exit option for shareholders after 12 mths from the sale of assets. In the worst case, we are looking at at least 3 years before we can harvest the 11.6cts. 1 yr to sell the business, 1 yr to remain listed, and 1 yr to wind down the business to distribute the cash. Of course, if any of the event take place earlier it will be a bonus. We are talking about 39% profit in 3 years.
- In the event that Oakwell decide to hunt of a new business, things will have changed.
My recommendation:
Unless you have deep pockets and the patience to wait, Oakwell is not for you.
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