OSIM founder may not succeed in privatising the company?

OSIM founder may not succeed in privatising the company? When the market is bullish, news of merger and acquisitions are usually met with positivity because generally, valuations will be higher and thus, the take-over offers would often be attractive to shareholders. However, the case is usually reverse during bear markets because of the possibility of hostile take-overs by competitors.

Sometimes, the management may even attempt to privatise the company on the cheap with the eventual aim of sharing the profits and dividends among the major shareholders. This is probably the case for OSIM, which recently announced a shocking voluntary cash offer by the founder, Ron Sim. However, whether Ron can succeed in privatising OSIM remains a big question mark. In this article, similar experience can be drawn from K1 Ventures, which made similar approach back in 2012.

Firstly, under the SGX Listing Rule, in order for the privatisation offer to be successful, OSIM founder must acquire at least 90% of the total number of issued shares (excluding treasury shares). Thereafter, OSIM founder is required to buy over the remaining shares of those “dissenting shareholders” who refused to accept his initial cash offer of $1.32 per share. Currently, the founder holds 69.25% of the total shares and thus requires only an additional of 20.75% to delist OSIM.

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In 2012, the management of K1 Ventures also made similar voluntary cash offer to privatize the company. Back then, the management made an offer of $0.135 per share, which was deemed way too low by most investors. Many investors had valued the shares at $0.30 per share and felt that the offer was too ridiculous to accept. Valuing the company was very tricky affair because many of K1 Ventures are privately-owned companies and there is very limited data for investors to determine their actual market values. Nevertheless, the take-over did not materialize and the investors unceremoniously vote a “no” to the management take-over.

Henceforth, drawing on K1 Ventures’ precedent, it is not a definite outcome that OSIM will be delisted. A lot will hinge on investors’ perspective of OSIM’s growth story.

To be fair to Ron Sim, the offer made is reasonable. Of course, I am not vested in this counter and have never purchased any OSIM shares before, so I may not be able to share the pain felt by investors who bought the shares at $2.00. However, being in a neutral position, I think I can provide an objective point of view.

Investors often have short-term memories and many Singaporeans tend to forget the painful journey of OSIM. Ten years ago, the stock used to trade in the $2.00 level but subsequently plunged to $0.04 – $0.05 level due to the ill-fated Brookstone saga and the Great Financial Crisis. Smart investors who bought OSIM shares during this period would make explosive gains and it makes sense for them to cash in now. Who knows whether the stock price would crash again during another bout of recession?

And then there are those investors who bought the shares at $2.70 level in 2014. For them, the prospect of losing 50% of their investments is real and frightening. This is wealth destruction at the maximum and of course they are complaining in various forums. They have kept faith in OSIM’s potential growth and must have thought that the declining prices for the past two years would not be harmful as they were unrealized paper losses anyway. But now, with the delisting announcement, they are staring at real loss and not paper loss. Before they knew it, they had been stabbed in the back by a falling knife. For them, the only way to survive this mess is to do nothing and pray that 90% offer acceptance level is not breached. Otherwise, the loss of monies resulting from the privatisation can be real damaging to their portfolio.

The trick to making money from the stock market is never to sleep-walk through your investments. Always remember to establish safety margins and set entry and exit levels for every investment.

Join me in my investment journey and read my financial adventures for free! Through the sharing, my vision is to improve and change people’s lives. In school, we don’t learn how to budget, manage our finances, build wealth and invest our money. Instead, we are taught useless subjects which we would never put to use most of the times during our working lives.

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