UOB: Scientex offer for Daibochi warrants too low


Daibochi Bhd’s shareholders are advised to reject Scientex Bhd’s offer for their Daibochi warrants as the offer of one sen a warrant is substantially lower than the market value, according to UOB Kay Hian Securities (M) Sdn Bhd.

Scientex completed the acquisition of a 42.48% stake in flexible packaging manufacturer Daibochi for RM222.5 million on Feb 19 to expand its client base and enhance capabilities in the flexible packaging business.

The acquisition triggered a mandatory takeover offer for the remainder 188.28 million shares and 27.32 million warrants in Daibochi not already owned by Scientex.

The share acquisition will be satisfied either by a cash offer of RM1.59 per share or a share exchange offer of new Scientex shares at RM8.80 apiece, while the warrant offer is at one sen per warrant.

UOB — acting as the independent advisor for the deal — said both the cash offer and share exchange are fair, but that the warrant offer is both unfair and unreasonable.

It said the offer is substantially lower than the closing prices of the warrants since they were listed on June 28, 2017, and up to the latest practicable date (LPD) on March 7 this year.

“The warrant offer price represents a significant discount ranging from 91.7% to 97.9% to the historical closing prices of warrants for the various periods,” it said. 

The periods are up to and include the LPD, as well as the warrants’ last trading day on Feb 8, 2019 and the heads of agreement entered into on Nov 14 last year.

“(The offer) also represents a significant discount of 91.7% to the theoretical value of the offer warrants of 12 sen.”

UOB added that the warrant offer is unreasonable as shareholders can sell the warrants for a higher price in the open market despite their low liquidity turnover of 0.35%.

“Shareholders can continue to hold their offer warrants, which expire on June 19, 2022, and sell their offer warrants in the open market at a higher price compared to (Scientex’s) warrant offer price,” it said.

The investment bank said this is because of Scientex’s intention to maintain the listing status of Daibochi on the Main Market of the local bourse.

“Nonetheless, we wish to highlight that in view of the low liquidity turnover of the offer warrants, shareholders…may have limited opportunities or may take a longer time to realise their investments in the offer warrants in the open market (at a higher price).”

On the cash offer, UOB said the RM1.59 offer per share is fair because it is within the fair value of Daibochi shares which ranges from RM1.52 to RM1.73.

The offer also allows shareholders to sell their respective holdings on a wholesale basis, given the low liquidity turn-over of Daibochi shares at 0.35% and absence of a competing offer, it said.

Meanwhile, UOB said the share exchange option is both fairly priced and reasonable.

“Accordingly, we advise and recommend that holders accept the share offer by electing the share exchange option, and reject the warrant offer,” it said.

The mandatory offer will remain open for acceptances until 5pm on March 25 this year. Scientex does not intend to extend the duration of the offer period beyond this closing date.