SINGAPORE: Despite discontentment from some minority shareholders, Digileap Capital’s cash exit offer for mainboard-listed Challenger Technologies at S$0.56 a share is “final” and will not be revised, according to bourse filings by the home-grown electronics retailer on Wednesday (Jun 12).
The delisting circular filed with the Singapore Exchange (SGX) also included a letter from independent financial adviser Deloitte & Touche Corporate Finance, which described the financial terms of the offer as “fair and reasonable”.
WHAT HAPPENED SO FAR
Challenger, a household name for IT products with 38 stores here in Singapore, said on Mar 20 that it intends to delist from the SGX after Digileap Capital made a cash exit offer of S$0.56 apiece for all of its shares.
Digileap Capital is a partnership between Challenger’s chief executive officer Loo Leong Thye and his family, as well as Dymon Asia Private Equity.
The exit offer price exceeds the highest closing price of Challenger’s shares since May 9, 2014, the company said. It also represents a premium of about 5.7 per cent over the last traded price of S$0.53 a share on the last full day of trading immediately prior to the announcement of the proposed delisting.
However, the offer has since been criticised by minority shareholder Pangolin Investment Management as “way too low”.
Challenger “should be valued by its cash flow to shareholders”, the fund manager said in a letter issued days after the delisting proposal, noting that the fair value of the shares should be at least S$1.15.
Pangolin, which holds a 2.94 per cent stake in Challenger through its Pangolin Asia Fund, has also called on other shareholders to reject the “derisory” offer during the upcoming extraordinary general meeting (EGM).
Challenger reiterated on Wednesday that a delisting will give it more flexibility to manage the business, optimise resources and implement operational changes without the attendant costs, regulatory restrictions and compliance issues of being a listed company.
At the moment, it is grappling with a host of challenges, such as a saturated electrical and electronics retail business environment in Singapore, weak retail sentiment and disruption from the rise of e-commerce, and has experienced a consistent decline in revenue over the last five years.
To navigate this challenging environment, Challenger said it may have to implement changes to its business which could affect dividends from the company.
The electronics retailer added in the delisting circular that it has no need for access to the capital markets in the foreseeable future, given that it has not carried out any corporate exercise to raise cash on the SGX since 2007.
A delisting will also help it to save on expenses relating to the maintenance of a listed status and focus these resources on its business operations instead.
Elaborating, Mr Loo said he began exploring the possibility of a delisting after receiving two unsolicited offers from minority shareholder Pangolin to sell its stake.
“The first offer was received in October 2017 wherein Pangolin offered to sell its stake at S$0.435 per share. (The) second offer was received in March 2018 and did not state the price at which Pangolin would be willing to sell its shares,” the chief executive said.
But instead of doing a transaction with a single shareholder, Mr Loo noted that he “wanted to make an offer to all shareholders and began looking for a partner to start (the) process”.
Challenger reiterated that in view of the historical low trading liquidity of its shares, its proposed delisting “represents an opportunity for all shareholders … to realise their investments in the company by making a clean exit at a premium”.
According to the delisting circular, Digileap Capital will review the businesses, organisation and operations of Challenger after the close of the exit offer.
This is to determine the optimal business strategy for the group and thereafter, it may implement changes to Challenger’s business to navigate the challenging retail business environment.
But apart from that, Digileap Capital “has no current intention to introduce any major changes to the business of the group, re-deploy the fixed assets of the group, discontinue the employment of any of the existing employees of the group, other than in the ordinary course of business”.
EGM TO BE HELD ON JUN 27
Earlier this month, SGX said it had no objection to Challenger’s delisting, subject to compliance with listing rules.
Challenger will now need to seek the approval of its shareholders during EGM set for 10am on Jun 27. The last date to lodge proxy forms for the EGM will be Jun 25.
To delist, it will need to garner an approval vote by a majority of at least 75 per cent, as well as rejection votes of not more 10 per cent.
CONFIDENT OF BLOCKING DELISTING: PANGOLIN
In response to Mr Loo’s comments, Pangolin said while it considered selling its stake back in Oct 2017 and “did sound out the company as to whether they might have a buyer”, it never made any firm offer.
“As fund managers we are always weighing up the pros and cons of holding any investment. It is part of the day-to-day operation of running a fund. It is also useful to sound out major shareholders as to their intentions,” said director James Hay.
Mr Hay added that the "pondering of an exit" in its investment was a "result of frustration, not with the operational running of the business, but the drag on shareholder returns as a result of the company holding too much cash and non-core investments".
Pangolin decided not to sell its shares in the end and prepared a presentation for the company’s directors with recommendations on what Challenger should do with its excess cash for the benefit of all shareholders, added Mr Hay.
"All we do know is that the offer, if it goes through at such a derisory low price and in the light of our research and recommendations, will benefit him and Dymon and not the minorities who have supported Challenger over the years."
Pangolin said it is not alone and has received "overwhelming support" from other minority shareholders.
"We've got so many emails saying this company is massively undervalued," Mr Hay told CNA. "They agree with us and have pledged their support to vote against (the offer)."
Including Pangolin’s holding, these amount to 9.8 per cent of Challenger’s shares, just shy of the 10 per cent needed to veto the delisting.
“10 per cent is enough to formally reject this offer and we’ll easily get this,” said Mr Hay. "Digileap are wasting time and money proceeding (with the offer)."
Editor's Note: This article was updated on Jun 13, 2019, with responses from minority shareholder Pangolin Investment Management.