I can’t decide whether I should laugh or cry….
…. I spend ages looking for reliable dividend payers to tuck away in my portfolios to hold forever. The last thing I need is to go looking for a replacement because of a buyout.
But a buyout at a premium can be an investor’s dream.
So, BreadTalk (SGX: CTN) has announced that it wants to take itself private. Its major shareholders have offered to buy the shares that it doesn’t already own at S$0.77 per share. That’s a premium of around 20% on its recent closing price.
The major shareholders include George Quek, his wife, Catherine Lee, and Thai-listed hospitality company, Minor International (BKK:MINT). Together they own about two-thirds of BreadTalk shares.
There are a couple of other significant shareholders, namely, US-based Paradice Investment, and Square Investment, which is operated by George Quek and Catherine Lee. The two investment vehicles own about 8.7% of BreadTalk.
So, we can safely assume that 75% of the votes to delist the company are already in the bag.
Like it or not…
Probably anyone who bought their shares between July 2017 and July 2019 could be disappointed. That was when the shares were at or near their peak.
At the offered price, BreadTalk is being valued at S$430 million, which is roughly 35 times its average profit for the last 10 years. That looks generous.
It also values BreadTalk at 0.7 times average annual sales for the last decade, which is also reasonable.
And finally, from my preferred dividend discount model, BreadTalk would have to raise its dividends at a sustained rate of 16% a year to justify a share price of S$0.77. That doesn’t seem likely.
So, the offer looks adequate, given that fair value for the company is around S$0.65 a share. Not that minority shareholders have much of a choice in the matter.
Some might suggest that the majority shareholders of BreadTalk might have been a bit opportunistic to announce a buyout at this time. What with the Covid-19 virus and the protests in Hong Kong.
But one lesson that we can, perhaps, take away from this event is that we should only try to buy shares when we believe that they are below their intrinsic values. We can’t go too far wrong if we do a bit of homework first.
Disclosure: David Kuo owns shares in BreadTalk.