PETALING JAYA: With little for minority shareholders to gain from an impending general offer, SMTrack Bhd’s shares saw a reverse in momentum.
Shares of the Ace Market-listed track and trace solutions fell half a sen to close at seven sen yesterday.
The counter was actively traded last Friday, gaining two sen to close at 7.5 sen, in response to the announcement by loss-making SMTrack that it would acquire US-based Wellspring Worldwide Ltd to facilitate the latter’s reverse takeover (RTO) of the company.
According to an analyst, there would be little for minority shareholders to gain from the proposed general offer for SMTrack, which would be undertaken upon the RTO completion.
He said the offer of 14 sen per share seemed unattractive, given the marginal or neglible premium to the theoretical share price of SMTrack upon completion of a corporate exercise, which would include a proposed rights issue of shares with warrants.
“Minority shareholders will likely find the offer unattractive if they looked at the overall impact on the counter after the rights issue of shares with warrants is completed pursuant to the RTO exercise,” the analyst said.
“The offer price, which on the onset seemed higher than its current market price, should not be misconstrued as having a high premium attached to it,” he explained to StarBiz.
The SMTrack-Wellspring deal was a culmination of a memorandum of understanding signed last August. Post-RTO, SMTrack would adopt the business model of Wellspring, which is the global master licensor of “Tutti Fruitti Frozen Yogurt” and “O’My Buns!”.
Under the proposed deal, SMTrack would acquire the entire stake in Wellspring, comprising 230 million shares, for RM310mil through a combination of cash and new shares. This would be satisfied through the issuance of 2.07 billion new shares at 14 sen each and cash payment of RM20mil.
In a filing to Bursa Malaysia last week, SMTrack said the acquisition would pave the way for Wellspring to undertake an RTO of the company. This in turn would trigger a mandatory general offer (MGO) for SMTrack shares at 14 sen each.
In conjunction with the proposed acquisition of Wellspring, SMTrack would undertake a rights issue on the basis of three rights shares for every two existing shares.
In addition, there would be free warrants on the basis of two warrants for every three rights shares subscribed.
According to SMTrack, the theoretical ex-all price (TEAP) of SMTrack shares pursuant to the proposed rights issue of shares with warrants would be 13.97 sen based on the five-day volume weighted average market price of the counter up to last Wednesday. The issue price of 14 sen per consideration share represented a slight premium of 0.21% to the TEAP of SMTrack shares.
Meanwhile, SMTrack said it would fund the RM20mil cash payment with the proceeds raised from a proposed private placement, which would be priced at 29 sen per share, and the rights issue.
Upon completion of the rights issue and proposed RTO, Wellspring’s shareholders would emerge as new controlling shareholders in SMTrack, with a combined stake of 75.69%.
Hence, the obligation to extend an MGO for the remaining SMTrack shares they did not own at 14 sen per share.
Wellspring would maintain the listing status of SMTrack after the MGO. To ensure the company’s public shareholding spread would remain above 25% of the enlarged issued share capital, the group would undertake another private placement of up to 10% of its enlarged issued share capital to independent third party investors post-MGO.