A day after reducing her call from “hold” to “reduce” and lowering her target price to 25 cents, CGS International (CGSI) analyst Andrea Choong reiterates her “reduce” call Silverlake Axis 5CP (SAL), on the back of its privatisation announcement on Aug 26.
To recap, SAL received a voluntary unconditional offer from its chairman who controls 74% of the company’s stake to take it private at 36 cents per share in cash.
The offeror, E21, is wholly owned by Zezz FundQ, and is an entity set up for this corporate exercise. Zezz FundQ is a controlling shareholder of SAL and has two classes of shares.
This includes ordinary shares wholly owned by founder and chairman Goh Peng Ooi, and redeemable convertible preference shares wholly owned by Merit Sigma, which is wholly owned by a fund managed by Ikhlas Capital Singapore, an ASEAN private equity fund.
Choong notes that the consideration for the offer will be, at the election of the shareholder, either 36 cents in cash for each share, or a combination of 30 cents in cash and one new redeemable preference share (RPS) in E2I.
The redemption amount for each of E21’s RPS is 18 cents.
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“The offer of 36 cents in cash per share represents a 20% premium to its last transacted share price and a 28% premium to its volume-weighted average price of the last month of trading,” says Choong. “The offer values SAL at 24 times FY2025 P/E (ex-cash), which is comparable to the average of peers in its sector (average 26 times FY2025 P/E).”
The analyst says this offer seems reasonable, and should all eligible shareholders take up the total cash offer, this would imply a cash outlay of about $235 million by E21 (for the stake not owned by Zezz FundQ), in her estimate.
Meanwhile, Choong says the RPS will not carry any voting or dividend rights, and will be mandatorily redeemed by E21 upon the expiry of five calendar years from their issuance.
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“We highlight that the RPS are in a private unlisted company and will not be listed on any securities exchange, which makes it relatively challenging to assess the risks and creditworthiness of the offeror at [this] current juncture,” Choong adds.
As at 3.23pm, shares in Silverlake Axis are trading flat at 37 cents.
