On 21 February 2018, Hap Seng Plantations (HSP), a bursa
listed plantation company announced that a share sale agreement was entered
between the major shareholder of Kretam Holdings Bhd and the company to purchase
a combined stake of 55% share in Kretam Holdings Bhd. Completion of the share
deal would see Hap Seng Plantations extending a mandatory general offer for all
remaining 45% share stake in Kretam Holdings Bhd, where investors are able to
sell their shares at the offer price of 92 sen per share without restriction to
HSP.
Several conditions are required to be fulfilled, namely Hap
Seng Plantations shareholder approval for the share purchase.
Currently the company is undertaking due diligence exercise
on Kretam Holdings, and extension has been sought for finalization of due
diligence.
The delay in completion of due diligence has made investors
jittery, fearing that a deal could not be reached and slashing any hopes for an
MGO to buyout all other shareholders at 92 sen offer price. Sharp selldown was
seen on 4 June 2018, where prices plunged 20% to close at 62 sen per share, a
huge 48% discount from the offer price. Prices rebounded slightly to close at
66.5 sen per share the next trading day on 5 June 2018 after clarification was
made to the media that due diligence exercise is still
ongoing.
Should the deal is officially cancelled, prices could plunge
further to its 52 week low of 52 sen per share a strong support where its price
has been hovering above these levels for whole of 2016 and 2017, a 23% loss
from current share price. Investors could potentially benefit on the upside of
~40% as any deal is very much alive currently.
Final thoughts:
Pros: Reward to risk ratio of ~2:1, large upside gains of ~40%
for a deal that could work out in 6 – 12 months.
Cons: Extension of timeline for deal completion, adverse
findings in due diligence results resulting in lower offer price or total
cancellation of share sale agreement.
Note: This is not an investment advice. Buy and sell any
securities at your own risk.
Disclosure: None.
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