On October 14, Hanwha Ocean and Hanwha Aerospace, through a special-purpose vehicle, raised their offer price for Dyna-Mac shares from S$0.60 to S$0.67 per share. Another significant development occurred on October 23, when Dyna-Mac’s independent financial adviser (IFA) declared the revised offer to be both fair and reasonable.
One of the reasons the IFA considered the offer fair was the comparison of the offer price to the prevailing market price, which was more favorable than similar non-privatisation transactions in Singapore since 2020. For example, the final offer price for Dyna-Mac is 18.6% above its volume-weighted average price (VWAP) over the last month, and 27.4% higher than its three-month VWAP. In comparison, non-privatisation offers during this period were, on average, priced 6.3% below the target companies’ VWAP for the same timeframes.
This raises the question: why were previous non-privatisation offers priced so low, and why was Dyna-Mac’s offer compared to them?
When Hanwha Ocean SG first announced its offer on September 11, it made it clear that delisting Dyna-Mac was not a primary goal. As a result, the IFA looked at past transactions where the offerors had also indicated they intended to keep the target company listed. Most of these transactions were mandatory general offers (MGOs), which are often triggered for technical reasons rather than a desire to gain greater control of the company. This can lead to lower offer prices, sometimes even below the target company’s market value.
One example of this was Temasek’s MGO for Sembcorp Marine in September 2021, following a deeply discounted rights issue priced at S$0.08 per share. Temasek increased its stake from 42.6% to 46.6% by subscribing to its entitlement and some excess shares, which triggered a mandatory offer at S$0.08 per share. This price was 8% below Sembcorp Marine’s VWAP over the previous month and 29.8% below its three-month VWAP. Sembcorp Marine has since been renamed Seatrium.
MGOs vs. VGOs
While MGOs and VGOs (voluntary general offers) have different dynamics, comparing Dyna-Mac’s offer to MGOs may not be appropriate. The offer for Dyna-Mac is a VGO, and Hanwha demonstrated its willingness to pay a premium to gain control. When the VGO was initially announced with a price of S$0.60 per share, Dyna-Mac’s stock had already risen by 48% that year. At that point, Hanwha Ocean and Hanwha Aerospace held about 24% of the company’s shares, mostly acquired at S$0.40 per share from Keppel in May. The increase in the offer to S$0.67 further underscored their intent to strengthen their stake in the company.
Although Hanwha has stated that it does not plan to delist Dyna-Mac, it has also indicated it will take no action if the company fails to meet the free-float requirement, which could result in the suspension of trading. Furthermore, Hanwha has expressed its intent to exercise compulsory acquisition rights if it secures sufficient acceptances.
Profitability Considerations
Another point raised by the IFA is that the final offer price of S$0.67 per share is nearly six times Dyna-Mac’s adjusted net asset value (NAV), which is significantly higher than the 1.26 times NAV-to-price ratio of seven comparable companies, including Singapore-listed Seatrium and Malaysia Marine and Heavy Engineering. However, these comparable companies had an average trailing 12-month return on equity (ROE) of 11.2%, while Dyna-Mac had a much higher ROE of 55.8%. Dyna-Mac’s return on assets and net profit margin also surpassed those of the other companies.
Given this, one might argue that the high price-to-NAV ratio cited to support the fairness of the offer should not have been highlighted without also considering Dyna-Mac’s robust profitability.
Investors often question low offer prices that fall below the NAVs of target companies, particularly when the assets are easily valued, such as real estate or cash. However, they should be equally cautious when offers are well above NAV, especially for highly profitable companies with significant growth potential.
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