Silverlake Axis

[weii]

Finally had a chance to review the IFA's report.

To recap, the offer was done by a newly setup company (100% owned by Chairman Goh's vehicle) with either (a) 36cents cash or (b) 30cents cash + 5year RPS of the newly setup company to be redeemed at 18cents.

IFA methodology Used 2 statistics (mean and median), 2 valuation methodologies (P/E and EV/EBITDA) and 2 comparisons (comparable software services companies still listed in India/US/Japan/Europe and comparable takeover precedents) to generate total of 8 numbers (2x2x2). The upper bound used the biggest number (41cents) and the lower bound (34cents) was calculated from the average of the remaining numbers (after excluding the outliers probably using box plot technique). As 36cents was within the 34-41cents range, IFA deemed offer to be fair and reasonable.

Exploring the alternate offer (30cents cash + 18cents RPS to be redeemed in 5 years time): (A) The RPS have no voting/dividend rights and just rank above ordinary shares (which is 100% owned by Goh). (B) Essentially OPMIs are trading 6cents cash for 18cents in 5 years time, or 40% return per year! This looks "too good" (B) Even using very generous 12.4% discount rate, the PV of this 6cents is actually 10cents. So in value investing parlour, one is paying 60cents for a dollar's worth in exchange for a 5 year illiquidity premium.

Behavior of SAL share price post announcement (A) Arbs paid ~5% premium to bet on an increase in price. It didn't materialize and so share price dropped back to 36cents. (B) The drop to 36cents suggest that Mr Market assigns almost zero value for the rights to participate in this RPS. Inefficient market? To good to be true?

P.S. I hope VB.com and SAL OPMIs who have decided to buy into this, are still around before the turn of the decade, to update everyone.

Have been a long-time OPMI and decided to sell at 37 cents, as the RPS is attractive in return but seems too risky for me. The rights are limited and there is big uncertainty. I would rather invest the 7 cents back into normal equity and get back 10 cents over 5 years using a general equity return of 8%. I think it's now at 36 cents because there is no longer any new buyer who is interested in doing the RPS. I concur with weijian that I hope RPS holders would update us on the outcome after 5 years

I wonder why minority shareholders of Silverlake should sell their shares in the open market. Silverlake is still not able to delist the company at this moment and it is likely to be forced to restore free float and stay listed on SGX. As it will not cost Silverlake a lot of money to buy over this small group of dissenting shareholders it is likely to offer $0.48 or higher in 5 years time.