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Market Talk What’s next for SEGi?
by Cals Sat 15 Mar 2014, 00:56
| Market Talk What’s next for SEGi? |
| Business & Markets 2014 |
| Written by Kamarul Anwar of theedgemalaysia.com |
| Friday, 14 March 2014 15:25 |
RECENT share and warrant purchases by Tan Sri Clement Hii Chii Kok — the controlling shareholder and managing director of SEG International Bhd (SEGi) — have raised speculation on what he is planning with private equity firm Navis Capital Partners Ltd (Navis), which holds a 41.7% stake in the education group.
Between Feb 28 and March 6, Hii bought nearly 50 million shares, lifting his direct interest in SEGi to 32.37% — close to the trigger point for a mandatory general offer. He also bought 24.3 million warrants in the same period, taking his total to 72.49 million or 90.7% of outstanding warrants.
The Edge Financial Daily, citing an executive familiar with the education group, recently reported that the two controlling shareholders could be making a second attempt to take SEGi private.
Together, Hii and Navis control a 74.1% stake in SEGi, which is sitting on a net cash pile of RM22.5 million.
Based on SEGi’s share base of 642.41 million, the parties acting in concert would need to acquire some 166.38 million shares plus 7.43 million warrants. Assuming that they give a premium of 10% over the previous offer price of RM1.714 per share and RM1.214 per warrant, they would need to come up with an estimated RM323.6 million.
However, if Hii decides to privatise SEGi without Navis this time around, he would need roughly RM819.13 million to buy out the group, excluding the outstanding warrants he does not already hold — a rather pricey affair.
SEGi’s share price has declined from a peak of RM2 in July 2012 after the failed privatisation attempt by Hii and Navis in that year. The stock closed at RM1.56 last Thursday, and the warrants ended at 99 sen.
The group’s earnings have also been on a downward trend in the past three financial years.
Net profit, which peaked in FY2011 at RM70.87 million, was only half this amount in FY2013 at RM32.98 million. Revenue also declined between FY2011 and FY2013, from RM278.29 million to RM236.804 million.
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| Hii, who founded SEGi and helms it, should know its prospects better than others |
This raised the question of whether Navis timed its share purchase badly. The parties who had sold their equity to Navis are probably laughing all the way to the bank.
The Sarawakian tycoon lay low during his two-year stint as executive deputy chairman of Star Publications (M) Bhd, which ended on Dec 31, 2010. His direct stake in SEGi then was barely 4.6%, or 11.23 million shares.
A few months later, Hii’s direct stake in SEGi jumped significantly to 32.17% when he acquired 10.84 million shares from Rexter Capital Sdn Bhd. He also held 34.09 million or 28.91% of the group’s warrants back then. Navis bought into the education group in the following year.
Cerahsar Sdn Bhd sold a 21.53% stake in SEGi to Navis for RM196.6 million cash. The private equity fund also bought a 6.28% stake from Segmen Entiti Sdn Bhd and 0.03% from Datuk Seri Chee Hong Leong.
After Navis has raised its shareholding to 27.84%, the private equity fund and Hii entered into a shareholders’ agreement “to regulate their rights and obligations as shareholders of SEGi”, with the two acting in concert to buy SEGi shares that they did not already own.
Under the shareholders’ agreement, Hii would continue to play a role in SEGi’s management and the running of its business operations.
Affin Investment Bank Bhd, in an independent advice circular for the privatisation exercise then, however, recommended that shareholders reject the offer by Hii and Navis, saying that the prices were “unfair” and “unreasonable”. The bank said, among other things, that the offer was at a discount to historical prices and at a lower price-earnings multiple than comparable companies.
The offerors ended up receiving acceptance levels of 66.45% and 69.01% for the shares and warrants respectively, after extending the deadline by two weeks to June 20, 2012.
Navis was then paying about 7% over the market price at around RM1.60 after the stock had climbed from a low of 13.6 sen.
Just two years before, SEGi’s share price had jumped a whopping 566%. That was in 2010, when the group undertook a one-to-two stock split exercise plus a two-for-five bonus issue and a renounceable rights issue of warrants on the basis of one warrant for two subdivided shares at five sen per warrant.
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This was the year that SEGi drew attention and saw its profits leap. In FY2010 Dec 31, the education group more than quadrupled its net earnings to RM43.06 million, or 17.4 sen basic earnings per share (EPS). This compared with FY2009’s basic EPS of 12.09 sen. Revenue, meanwhile, jumped 30.8% to RM217.62 million from RM166.37 million.
The party went on as the share price continued to climb in the following two years but the music stopped abruptly in the second half of 2012 after the privatisation exercise.
In 4QFY2013, SEGi’s net profit almost quadrupled to RM8.34 million from RM2.53 million a year ago. EPS grew to 1.3 sen from 0.4 sen.
Hii, who founded SEGi and helms it, should know its prospects better than others. There must be a good reason why he accumulated more shares.
This article first appeared in The E
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