PNB and LTH expected to accept revised offer price for Engtek

PETALING JAYA: Permodalan Nasional Bhd (PNB) and Lembaga Tabung Haji (LTH) are likely to accept the revised offer price in the buyout offer from TYK Capital Sdn Bhd to take Eng Teknologi Holdings Bhd (Engtek) private, if the price does not fall below RM2 per share, said OSK Research.

On Thursday, Engtek announced that the final terms would very likely contain a condition that the sale of business agreement (SBA) be amended to reflect an adjusted offer price not exceeding RM2 per share.

If this is carried out, the offer price would be reduced by 20% from the SBA offer price of RM2.50 per share.

OSK Research said as PNB and LTH had a combined 23% equity interest in Eng Tek that was held since early 2000, their decision on whether to accept the revised offer price might prove crucial in sealing the privatisation deal.

“Based on our estimates, PNB and LTH's average cost per share amounts to between RM1.40 and RM1.80 per share.

“Assuming that the offer price is now RM2 per share, there is an upside of 10% to 45%.

“This compared with 35% to 75% based on the previous offer of RM2.50 per share.

“We think that there is still a high chance that both entities will give their consent, especially with the hard disk drive segment now facing long-term headwinds.

“This arises from the proliferation of smartphones and tablets which has sapped the demand for personal computers and the slow but steady transition to solid state drives as the primary medium of storage.

“However, any offer price below RM2 per share could discourage PNB and LTH from participating in the proposed privatisation,” said OSK Research in a report yesterday.

TYK in November last year had sought to extend both the due diligence period and funding confirmation period by a further 120 days starting from Nov 20, 2011.

The extension was aimed at providing TYK's financiers with sufficient time to complete the due diligence in view of the floods in Ayutthaya, Thailand.

OSK also believed that the revision of the offer price to RM2 per share or below was highly likely on Engtek's recent quarterly results and the situation in Thailand.

But the final price will be determined by TYK Capital along with its financiers.

“In the fourth quarter ended Dec 31, 2011, Engtek posted a net loss of RM42.9mil, arising from the recognition of asset impairments and write-offs amounting to RM45.6mil.

“We also highlighted that the company is looking to replace 400 damaged computer numerical control (CNC) machines with 300 new generation CNCs costing approximately RM90m, in order to restore its production capacity back to pre-Thai flood levels,” OSK said.