Monday, August 31, 2009

Review on Sihuan Pharma and previous other cash offer companies August 2009

My first experience with cash offer was average. I never like active trading but had to, just in case something wrong happen. This is the time where I wish I had stop order so that I can spend less time monitoring. I believe POEMS Protrader allow that but it isn't free.

The price of Sihuan is still pretty stagnant, I could have probably try buy much later than I thought. I am still clueless if there are alternatives to just selling the stock on the market. I am not sure if I can accept the cash offer if I buy the stock after the announcement since I do not think I will have the letter to fill up to accept the offer. Furthermore, I am not sure of the charges to accepting the cash offer and how long it will take? I checked POEMS website and it wrote $10.70 for transaction with cash offer. However, I am not certain if that is the correct cost.

There are dangers with these offers,
* The offer do not go through and prices may plunge,
* stock usually illiquid so making assumption you can buy/sell (okay for small amount but not big lots),

I review the previous cash offers I can find and calculate the possible profit and look at their situations. For the buying price, I take the closing price on the next day after the announcement. For the number of lots, I choose the lot that will minimize the brokerage charges. I use online non-advisory which the charge is 0.28% of the contract or minimum $25. For those too lazy, your contract should be > $8929 or else you will pay > 0.28% brokerage charges since you are paying the minimum of $25. Although, you can save even more by trading in higher amount since the charges are tiered, 0.22% > 50k, 0.18% > 100k. Also, clearing charges are capped at $600 or 0.04% but it takes a huge amount of $1.5m to take advantage.

Reviews of other previous cash offers

* Possible mandatory announcement of offer @ $3.9459, above the previous $3.02, made at 19th February 2008 end of day.
* Never reached the offer price
* Condition 1: Convertible Bonds @ $4.455 are converted. Sounds like a crazy condition since who will convert/buy at $4.455 and can only sell at loss at $3.9459?
* Condition 2: valid exercise of consolidated 2003 warrants. Not sure about this, but it expires at October 2008 and entitle warrantholder to subscribe share at $0.05 each, with around 582,678 shares exercisable.
* Ongoing because of delay with the PRC Anti-trust approval.

Not a straightforward offer with some call/put options. Also, it mention of requirement of PRC Anti-trust approval. Condition 1 sounds illogical but at 10 December 2008, there are news of some convertible bonds are converted. The price was $0.755 at 19th November when the bond was converted, and the amount per share it converted sounds wrong. Perhaps I calculated wrongly so I attached the documents, if anyone wish to check.

"S$175,000,000 zero coupon secured exchangeable bonds due 2012 (the "Bonds") issued by Best Decade had exercised its right to exchange S$300,000.00 in principal amount of Bonds ("Relevant Bonds") for 75,000 ordinary share"

If held till maturity, the final amount should be $300,000. So the amount converted currently is $300,000/75,000 = $4 per share. Unless they
a) thinks Delong will be > $4 per share when the bond due at 2012,
b) feels they cannot get their amount back if company will bust before 2012,
I cannot think of much other reasons why they converted at 530% of the price on the market.

SP Chemicals:
* Announcement of offer @ $0.73, above the previous $0.615, made at 15th September 2008 end of day.
* $0.73 reached at 13st January 2009, around 4 months after offer
* Never went above offer price
* Delisted
* 13 lots @ $0.705 and selling @ $0.73 = 2.82%, annualized = 8.65%

It took the longest period to reach the offer price, around 4 months. Interestingly, the stock drops to as low as $0.67(5% less from 0.705) during this period. I cannot find any reasons or explanation to it. Perhaps, a trader sold due to fear of the offer not materializing or lost his patience. Honestly, I wonder if I sell my shares too on fear since there are no explanation at all, or will I buy more shares hoping it was a dumb decisions by someone else.

* Announcement of offer @ $0.21, above the previous $0.165, made at 4th May 2009 end of day.
* Alternate to cash offer, 0.374 shares of HK$0.10 each in capital of Kingboard Laminates, parent company listed in Hong Kong. It is only valid provided it got clearance of Stock Exchange of Hong Kong(SEHK).
* $0.21 reached at 6th May 2009, 2 days later!
* Went as high as $2.65, 21st August 2009, because some shareholders not happy with offer
* Still ongoing
* 44 lots @ $0.205 and selling @ $0.21= 3.82%, annualized = 313.90%

The shareholders don't seem to like the offer and also how the scheme meeting was held. I believe it was held in Hong Kong and shareholders will not go there just for the meeting.

Chunghong Holding:
* Announcement of offer @ $0.115, above the previous $0.095 made at 5th May 2009 end of day. No Closing Date.
* $0.115 reached at 12th May 2009, around 1 week after offer
* Went as high as $0.130, 28th August 2009, not sure of reasons
* Still ongoing
* 82 lots @ $0.110 and selling @ $0.115 = 3.82%, annualized = 71.96%
It is still ongoing although there are chances to cash out as early as 1 week after offer. However, the price was already very close to exit offer on the next day of offer. Without calculation, I will thought the margin will be smaller than C K Tangs, but due to the cheaper price, the margin are higher.

C K Tang:
* Announcement of exit offer @ $0.83, above the previous $0.70, made at 8th May 2009 end of day.
* 0.83 reached at 10th June, around 1 month later.
* 15th July, price starts to increase to the high 0.885, probably due to some shareholder unhappy with the exit offer or thinking there will be a higher cash offer. The effort was useless in the end too, wonder who bought them so high.
* 6th August, suspension of trading after approval.
* 11 lots @ 0.815 and selling @ 0.83 = 1.13%, annualized = 12.5%

It took around 1 month to reach the cash offer, I do not have the trade information so no clue of number of shares traded >= cash offer. I calculated profit margin based on the last price after the announcement, buying minimum lots that will reduce the brokerage charge(online non-advisory, 0.28% or min $25) and the cash offer price.

Singapore Petroleum Co.:
* Pre-conditional offer @ $6.25, above the previous $5.04, made at 24th May 2009 end of day.
* 13th July, unconditional offer made, closing date 21st August 2009
* Considering only from 13th July, $6.25 reached on 27th July, 2 weeks later
* Went as high as $6.42, 11st August 2009, not sure of reasons
* Still ongoing
* 2 lots @ $6.12 and selling @ $6.25 = 1.41%, annualized = 36.76%

A few difference from other offer,
1) plans to stay listed even after offer,
2) a pre-condition cash offer first.

Man Wah:
* Annoucement of offer @ $0.23, above the previous day $0.21, made at 5th June 2009 end of day.
* $0.23 reached at 2nd July, around 1 month later
* Reached high of $0.245
* Suspended on 19th August
* 40 lots @ $0.225 and selling @ $0.230 = 1.41%, annualized = 20.41%

Almost forgot about this stock, till I saw it on the newspaper about S-chip delisting.

Tsit Wing:
* Annoucement of offer @ $0.27, above the previous day $0.20, made at 15th June 2009 end of day.
* $0.27 reached at 17th June, 2 days later
* Reached high of $0.275
* Ongoing
* 34 lots @ $0.265 and selling @ $0.270 = 1.51%, annualized = 215.35%

Did not know about this but just happened to see it while searching for some other terms. This stock is very illiquid with days without any volume at all. If you miss selling on 17th June, the next time it reached $0.27 was 9th July.

Sihuan Pharma:
* Conditonal announcement of offer @ $0.975, above the previous day $0.765, made at 24th August 2009 end of day.
* Condition 1: No change in business that will result in reduction of > 3% in net income
* Condition 2: No restatement since incorporation that will result in reduction of > 3% in (i) the consolidated profit attributable to equity holders of the Company or (ii) the consolidated net assets
* Never reached the offer price
* Ongoing
* 10 lots @ $0.955 and selling $@ 0.975 = 1.38%

I bought the share without looking into too much details. I didn't realize I have more time since it usually don't goes to the offer price immediately. Also, I am not sure if they are opportunity to buy at even cheaper if I see it earlier or will it be at $0.955 almost immediately at market open. Based on the condition, it will probably waits till the 3Q results are announced before there will be huge open market purchase. The previous 3Q results are announced around November, so there are still a couple of months.

I still have some additional questions to understanding these offers, who bought the stocks the next day after the offer. Is it the banks that make announcement on behalf of companies? Or is it the company or investors instead? Also, who buys the share at the offer price on the market? Is it the company or investors that thinks the price will go higher? Also, there are various terms like conditional, unconditional, voluntary, etc. Is voluntary delisting the same as privatization?


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