Lifetime Membership The featured company for this article is SATS Ltd. The last time that I covered the food solutions and gateway service provider was more than two years ago. Back then, the company was struggling to contain the fallout from the pandemic. Time files. In the blink of an eye, pandemic is quickly fading into distant memory as Singapore fully opens its borders. Recently, one of the members of SG Wealth Builder requested for my insights following the bizarre meltdown of SATS share price.
The recent collapse of SATS share price must have caught the attention of many investors as it came on the back of a strong recovery in travel demand. Like many aviation stocks such as SIA and SIAEC, SATS share price has recovered to about 80% of the pre-pandemic levels prior to the recent plunge. In fact, SATS share price had been in robust form as travel recovery led to an improvement in its business performance. And then out of nowhere, SATS share price suffered a devastating train-wreck.
On 28 September 2022, the market reacted violently to the announcement of the $1.755 billion acquisition of Worldwide Flight Services (WFS) Global Holdings. Consequently, all hell broke loose for SATS share price as short-selling volume swelled to a high of 25 million in the final week of September. For the records, the average weekly short-selling volume for SATS is usually about 2 to 3 million. On this basis, it seems that the market is giving the thumbs down on the deal. What could be the reason for the adverse reactions?
To be honest, the acquisition of WFS is considered a baptism of fire for the new CEO, Mr Kerry Mok, whose tenure started only in December 2021. The first acquisition led by the new CEO was actually the acquisition of additional shares in the capital of Asia Airfreight Terminal Co. Ltd (“AAT”). That deal was completed in March 2022 but was for a considerably smaller cost of $58.5 million. WFS is another ball game altogether as the mega deal costs more than a whopping billion dollar.
Questions abound on whether SATS had overpaid for the latest acquisition. In my view, it is too early to tell as the deal is still subjected to shareholders’ approval at an EGM scheduled to be held early next year. Nonetheless, it is not difficult to understand the crisis of confidence engulfing SATS share price. Given the timing and sheer size of the acquisition, investors have every reason to be concern over the execution risks. In this article, I will provide a holistic view on the deal.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. Furthermore, I am not vested and have never invested in SATS before. Whether SATS share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.
SATS share price thrown under the bus
Investors must be feeling riled that the acquisition of WFS had torpedoed the form of SATS share price. Under the current climate, there is also no certainty that SATS share price will recapture its form after the completion of the acquisition. Notwithstanding these, investors must ask if the long-term gain is worth the short-term pain.
My biggest concern over the deal is the [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Lifetime Membership
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