No change to Challenger exit offer despite pressure

Challenger's independent directors have recommended that shareholders accept the exit offer price of 56 cents a share and back the company's delisting at an upcoming extraordinary general meeting.
Challenger's independent directors have recommended that shareholders accept the exit offer price of 56 cents a share and back the company's delisting at an upcoming extraordinary general meeting.ST PHOTO: KUA CHEE SIONG

Minority shareholders say price of 56 cents a share is too low

The exit offer for IT retailer Challenger will not be raised despite pressure from minority shareholders who say they are being short-changed.

Challenger told the Singapore Exchange (SGX) in a delisting circular yesterday that the entity undertaking the buyout is sticking to its price of 56 cents a share.

The circular also noted that the offer price exceeds the stock's highest closing price since May 9, 2014.

It represents a premium of about 5.7 per cent over the last traded price of 53 cents on March 15, the last full day of trading before Challenger's March 18 trading halt.

The firm announced on March 20 that it intended to delist.

And a report out yesterday from independent financial adviser Deloitte & Touche Corporate Finance dubbed the financial terms of the exit offer "fair and reasonable".

Challenger's independent directors have also recommended that shareholders accept the deal and back the delisting at an upcoming extraordinary general meeting (EGM).

Digileap Capital - a partnership between Challenger chief executive Loo Leong Thye and his family and Dymon Asia Private Equity - made a cash offer at 56 cents a share.

Mr Ng Leong Hai and four members of the Loo family, including Mr Loo, hold 78.64 per cent of shares and back the delisting.

But minority shareholders, including Pangolin Investment Management with a 2.94 per cent stake, said the offer price was too low.

A report Pangolin released in March said the shares' fair value should be at least $1.15, not the 56 cents Digileap Capital was offering.

Pangolin contends that Challenger holds too much cash on its balance sheet and if it paid out more of its earnings as dividends, the share price should adjust and potentially more than double to $1.15.

The delisting circular filed yesterday said Digileap believes privatising the company will bring more management flexibility to optimise resources and make operational changes.

Weak retail sentiment and disruption to revenue from e-commerce may force the firm to make changes to its business, which could affect dividends, it added.

Challenger has not carried out any capital raising moves on the SGX since 2007, and it is unlikely to need access to the Singapore financial markets. Delisting will help save compliance costs as well.

Mr Loo said yesterday that he considered a buyout after receiving two offers from Pangolin to sell its stake - one in October 2017 at 43.5 cents a share and another in March last year.

But he said: "Instead of doing a transaction with a single shareholder, I wanted to make an offer to all shareholders and began looking for a partner to start this process."

Pangolin said it made no formal offer in either instance.

Director James Hay said yesterday: "In October 2017, we were considering selling our Challenger shares and did sound out the company as to whether they might have a buyer. There was never any firm offer (made)."

Challenger will hold its EGM on June 27. If a resolution to approve the delisting is passed, the company will be leaving the SGX irrespective of the number of acceptances received for the exit offer.

The resolution must be approved by a majority of at least 75 per cent and not be opposed by a 10 per cent bloc vote by those present.

An investor, who wanted to be known only as Watson, remains hopeful that the bloc vote will succeed, as shareholders holding 9.8 per cent of total shares plan to vote against the offer.

Dr Charles Lim, another minority investor, noted: "We were all expecting the offer price to be revised, given the strong opposition to it... We see value in the company and always thought the value has been more than what the market has been willing to pay for it at any one point in time."

A version of this article appeared in the print edition of The Straits Times on June 13, 2019, with the headline 'No change to Challenger exit offer despite pressure'. Print Edition | Subscribe