No change to exit offer for Challenger in proposed delisting; EGM to be held on June 27

In the circular, Challenger said its offer price exceeds the highest closing price of its shares since May 9, 2014.
In the circular, Challenger said its offer price exceeds the highest closing price of its shares since May 9, 2014.PHOTO: ST FILE

SINGAPORE - The exit offer for home-grown IT retailer Challenger will not be raised from 56 cents apiece, in its proposed voluntary delisting from the Singapore Exchange (SGX), despite pressure from minority shareholders in the earlier months.

The financial terms of the offer have been found "fair and reasonable" as well by independent financial advisers Deloitte & Touche, according to their report in Challenger's delisting circular, filed on the SGX on Wednesday (June 12) morning.

In the circular, Challenger said its offer price exceeds the highest closing price of its shares since May 9, 2014. It also represents a premium of approximately 5.7 per cent over the last traded price of 53 cents per share, before the trading halt on March 18, ahead of its proposed delisting.

Challenger had announced on March 20 that it intends to delist, with Digileap Capital - a partnership between the Loo family and Dymon Asia Private Equity - making a cash offer at 56 cents apiece.

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

But minority shareholders, including Pangolin Investment Management which owns 2.94 per cent of Challenger, said Digileap's offer price was too low and unfair for them. A report Pangolin released in March said the fair value of the shares should be at least $1.15, not the 56 cents that Digileap Capital is offering.

Pangolin's position is that Challenger is holding too much cash on its balance sheet, and if the retailer pays out more of its earnings as dividends to shareholders, the share price should adjust and potentially more than double to $1.15.

In its delisting circular, Challenger reiterated that the delisting will give it more management flexibility to optimise resources and implement any operational changes.

With the company facing challenges due to weak retail sentiment and industry disruption, it may have to make changes to its business to navigate the retail environment, and dividends could be affected in such a time.

The company, which has not carried out any corporate exercise to raise cash funding on the SGX since 2007, is unlikely to require access to the Singapore capital markets to finance its operations, it said, and delisting will help it save on compliance costs also.

On Wednesday, Challenger set out the rationale for its delisting, which started when its chief executive, Mr Loo, received an offer from Pangolin in October 2017 to sell its stake in the company at 43.5 cents per share.

It added that Pangolin made another offer in March last year, although Pangolin told The Straits Times that it did not make formal offers in both instances.

According to the circular, Mr Loo started considering the possibility of delisting after two offers from Pangolin. But "instead of only entering into a transaction with a single shareholder, (he) wanted to make an offer to all shareholders and started looking for a partner to commence such a process".

In response, Pangolin director James Hay said: "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)."

While Pangolin told Challenger it was pondering the exit of its investment at the time, Mr Hay added that weighing the pros and cons of holding any investment is part of the fund's operations.

"The pondering was a result of frustration, not with the operational running of the business, but (with) the drag on shareholder returns as a result of the company holding too much cash and non-core investments," Mr Hay said, maintaining that the current offer price is too low. "The value has always been apparent within Challenger."

An extraordinary general meeting, when a resolution will need to be passed to approve the delisting, will be held on June 27. The last day for lodging the proxy form for the meeting is June 25.

If the EGM resolution is passed, with SGX approval, the company will be delisted irrespective of the number of acceptances received for the exit offer.

For it to pass, 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.

In an indicative timetable, Challenger said its shares will likely be suspended from trading on July 5, and the delisting is expected to be approximately two to three weeks after a closing date of July 11.

Mr Hay said that minority shareholders, including Pangolin, holding up to 9.8 per cent of Chaellenger's shares are planning to oppose the offer at the upcoming EGM.