On July 8, Hwa Hong Corp’s current directors were informed by the Securities Industry Council that the solicitation of alternative offers to the 40 cents offer by Sanjuro United by Evercore (Asia) “in particular the solicitation of competing offers, cannot remain unclarified, and that shareholders should be given sufficient information, advice and time to enable them to reach an informed decision on the offer.”
SIC has said it requires that each potential competing offer must announce a firm intention to make an offer by 5.00 p.m. on July 25, being the business day immediately following the 53rd day from the date of the offeror’s despatch of its offer document.
“The solicitation of competing offers, cannot remain unclarified, and shareholders should be given sufficient information, advice and time to enable them to reach an informed decision on the offer,” SIC told the board of Hwa Hong, according to a July 8 announcement.
Take a step back. On May 13, Sanjuro United, a consortium formed by the shareholders of four parties, EL, CSGL, RAL and EIPL (EIPL is owned by Ong Choo Eng, one of six sons of the patriarch Ong Chay Tong), announced a voluntary conditional offer of 37 cents to its shareholders. The current Ong directors of Hwa Hong, which comprise the sons of three of Ong Choo Eng’s brothers, appointed Evercore Asia to perform a strategic review and to source for better offers.
On June 14, Sanjuro revised its offer to 40 cents. Subsequently a circular was dispatched to shareholders where Provenance Capital, the independent financial adviser (IFA) to the current Ong directors, has stated that the offer is fair and reasonable. The IFA also pointed out that while the revalued net asset value (RNAV) can be as high as 50.5 cents, fair value is 40-43 cents.
According to the offer circular, Evercore is likely to be paid on a success basis should it obtain a better offer for shareholders and the fees involved are likely to have a negative impact on the current 40 cents offer price. The IFA stated in the offer circular: “As a result of the fees involved, IFA has indicated that estimated Adjusted RNAV of the Group as at 31 December 2021 will need to be reduced by up to approximately $0.0148 per share. Hence, any potential bidder looking to come up with an offer price will need to take into consideration the fees.” Based on the arithmetic, any competing offer would need to be above 41.5 cents to make sense to shareholders.
The circular adds that the total fees can only be determined at the close of the transaction because of the success fees to Evercore in the event of a competing offer. Provenance has also stated that its fees are not based on a success basis. “For the purpose of disclosure, our IFA advisory fee is not on a success basis,” Provenance says.
As at July 5, Sanjuro’s stake coupled with acceptances and buys in the open market stood at 38.2%. The current Ong directors hold 29.26%, other Ong family holds 10.9% and City Developments 5.11%.