News analysis

Pattern of disclosures from Spindex raises questions

After launching an offer to take Spindex Industries private less than a month ago, the founding Tan family has moved with extraordinary speed to secure a majority stake in the Singapore-listed precision engineering firm.

The pattern of disclosures by the Spindex board, however, has created excitement for a rather different reason.

Yesterday, Spindex shares jumped above the Tans' offer price of 85 cents a share, in the first trading day after punters discovered late last Friday that two other parties were mulling over competing offers.

Given that, the question arises if earlier disclosure by the Spindex board might have made a difference to minority shareholders.

In a surprise announcement after trading hours last Friday, private equity firm Northstar said that it was "considering all options with respect to Spindex", including making a conditional offer for the company's shares at a price above the 85 cents a share that the Tans had offered for an acquisition via a scheme of arrangement on Feb 9.

Northstar was not alone in expressing a competing interest in Spindex, nor was it the first.

Two separate parties had approached the Tan family's offer vehicle, Hong Wei, with a view to make an offer for Spindex, Hong Wei said the same night.

Spindex's independent directors added that one party made a written request to them as early as Feb 23 to conduct due diligence on the company.

The letter did not contain any offer or indicative terms, the three independent directors said. They rejected the request last Wednesday.

This party immediately sent a second request to the directors, citing the Takeover Code, which requires that any information given to one offeror must, on request, be furnished equally and promptly to other potential offerors, who should specify the questions to which they require answers.

The independent directors have since written back to ask this party to specify the questions it wants answered.

Might minority shareholders who had parted with their shares for 85 cents apiece before Friday have acted differently if this information had been disclosed sooner, say, on Feb 23 or even March 1?

When contacted by The Straits Times, lead independent director Chew Heng Ching said he was overseas and suggested that The Straits Times speak with someone else.

Regardless, the emergence of potential counter offers has arguably had a material impact on Spindex's share price.

The shares, which last traded at 85 cents before these disclosures were made, shot up four cents or 4.71 per cent to close at 89 cents yesterday, touching a high of 94 cents in early trading. More than 25 million shares changed hands.

That heavy volume, representing an unusually large surge in interest, was in stark contrast to Spindex's average trading volume of only 38,305 shares in the month leading up to the Tan family's offer.

All this unfolded even after a 7am announcement yesterday by Hong Wei stated that the Tans had acquired enough shares to cross the 50 per cent shareholding threshold, making their offer unconditional.

Although the Tans had initially proposed a takeover by way of a scheme of arrangement, they said last Friday that they had obtained regulatory approval to switch to a mandatory general offer.

This means that by yesterday morning, they had secured a 50.3 per cent majority stake in Spindex, drastically reducing the chances of anyone launching a rival offer for Spindex.

That's because any third-party takeover offer is bound to fail - that is, get less than 50 per cent - unless the offer is made at a price so high that even the Tans tender their stake.

Assuming that the market has factored in this consideration, if Spindex shares continue to float above 85 cents a share - as might be the case if enough shareholders think the Tans' offer undervalues the company - there is a chance that the Tans' privatisation bid might not materialise at all.

The Tans have committed not to raise their offer price, and with Spindex shares trading above 85 cents, it is unlikely that they will be able to reduce the public float to less than 10 per cent, as is required for a delisting.

This series of events raises more questions than answers, and the Spindex board should move to leave no doubt among shareholders and investors that all options were considered and the best offer laid on the table.

Shareholders will want answers to these questions, especially if Spindex remains listed - as it looks set to be - with the same board tasked with representing shareholders' interests.

A version of this article appeared in the print edition of The Straits Times on March 07, 2017, with the headline 'Pattern of disclosures by Spindex board raises questions'. Print Edition | Subscribe