Private equity firm KKR is offering S$1.95 in cash for each Unisteel share. The price represents a premium of 27.2% to UnisteelÆs six-month volume-weighted average price and a premium of 18.9% to its closing price on April 15.
On April 16 Unisteel told the Singapore Exchange (SGX), in response to a query regarding possible reasons for a substantial increase in UnisteelÆs share price the previous day, that it was reviewing strategic options. The offer price marks a premium of 39.3% over UnisteelÆs closing price on April 14.
The price translates into a price-to-net tangible assets multiple of 5.8 times, based on UnisteelÆs unaudited net tangible assets on March 31, and a trailing price-to-earnings multiple of 17.7 times, based on UnisteelÆs unaudited earnings for the 12 months to March 31.
KKR has already cornered 20.54% of UnisteelÆs share capital through agreements reached with controlling shareholders, including UnisteelÆs executive chairman Bernard Toh who owns 18.25% of the company. It needs to receive the backing of 75% of the share capital represented by shareholders present and voting, either in person or by proxy, at an upcoming shareholders' meeting, as well as of a majority in terms of the number of shareholders present at the same meeting.
Unisteel is a precision engineering company, which makes parts for computer hard-drive manufacturers. It has been in business for 20 years and listed on the SGX in 2000. It has manufacturing facilities in Singapore, Malaysia and China.
KKR said in its SGX filing that it is keen to ensure continuity in the running of Unisteel and will be finalising schemes to enable the company's management team to buy new or existing shares in the holding company. It will also put together a performance share plan.
In a research update issued by OCBC yesterday morning, the brokerage firm advised investors to accept KKRÆs offer of S$1.95 per share, as it represents an 11% premium to OCBCÆs fair value estimate. Singapore-based OCBC cited the fact that the economic outlook has become even more uncertain since it made its estimate of fair value as a further rationale for shareholders to accept the offer.
Unisteel closed at S$1.89 a share yesterday.
KKR is effecting the acquisition through the KKR Asian Fund and the KKR 2006 Fund. Media is speculating that KKR out-bid private equity firms Bain, Carlyle and TPG to win Unisteel.
KKR set up shop in Asia in late 2005. Since then it has closed a $2.66 billion buyout of Avaga Technologies in Singapore and a buyout of FlextronicsÆs India-based software business for about $900 million. KKRÆs most recent Asia investment was announced in April 2007 when it acquired Singapore-listed MMI Holdings for S$1 billion. MMI is in the same line of business as Unisteel and analysts reckon that KKRÆs long-term plan may be some sort of combine of the two companies.
Macquarie ran an auction on behalf of Unisteel, marking the second time in the past year that the Australian investment bank has sat across the table from KKR as Macquarie was also adviser to MMI. Morgan Stanley and Deutsche Bank were advisers and arrangers for KKR on the Unisteel deal, edging out Credit Suisse who worked with the private equity firm on the MMI deal.
In July 2007 KKR filed a prospectus for a $1.25 billion initial public offering with the Securities and Exchange Commission in the US. KKR was trying to follow the lead of private equity firm Blackstone which IPOed in June 2007 pricing at $31 a share.
At the time of the filing KKR had $57 billion in assets under management and 7% of its capital between 1996 and 2007 had been invested in Asia, compared to 48% in North America and 45% in Europe. In the prospectus KKR stated that committed capital for the Asian Fund was $4 billion, but it has not confirmed what the fund size was at closing.
KKR has not yet launched the IPO as its listing plans coincided with a market downturn in the wake of the subprime crisis. Blackstone closed at $18 on the NYSE on Monday, down 42% from its IPO price.
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