Why Did The Share Price Of LanTrovision S Ltd Jump By 41% This Week?

One of the stocks in Singapore with the biggest share price increases this week has to be Lantrovision S Ltd (SGX: BJK). The company, which had a market cap of just S$120 million last week, has seen its shares jump by 41% from last Friday’s close to S$3.15 currently.

That’s a result of an announcement made by the company on 27 January 2015 that it’s going to be taken private.

The acquirer

According to the announcement, Mirait Singapore, a subsidiary of MIRAIT Holdings Corporation, has agreed to commence procedures to fully acquire Lantrovision.

MIRAIT Holdings is a Japanese company that builds telecommunications infrastructure. The firm is listed on the Tokyo Stock Exchange in Japan and reported annual revenue of US$2.35 billion in its most recent financial year. MIRAIT Holdings hopes to strengthen its overseas presence through the acquisition of Lantrovision.

The announcement also stated that MIRAIT Holdings is offering S$3.25 per share in cash for shares of Lantrovision, which equates to a 47.7% premium over the company’s last-traded price of S$2.20 on 26 January 2016.

With details of the deal out of the way, it’s perhaps time to consider a crucial question: Is this a fair offer for shareholders of Lantrovision?

Lantrovision’s value

Lantrovision, which has regional offices across the Asia Pacific region (28 cities in 13 countries), is involved mainly with the design, implementation, maintenance, consulting and sale of equipment for LAN (local area network) cabling.

The company has an impressive track record, growing its net profit at a compound annual rate of 8.4% from S$5.08 million in FY2006 (fiscal year ended 30 June 2006) to S$10.54 million in FY2015.

Meanwhile, the firm has also maintained a stellar balance sheet over the same period, being in a net-cash position all the way. As of 31 December 2015, Lantrovision had a net-cash position (total cash and short-term investments minus borrowings and capital leases) of S$91.2 million. That’s an extremely strong balance sheet, given that the company only had a total asset base of S$166.9 million. (This indicates that the firm’s net-cash position is 55% of its overall assets).

At S$3.25 per share, Lantrovision would be worth S$172.5 million in total. If we exclude its net-cash position of S$91.2 million, the business itself would be valued at just S$81.3 million.

Given that the company has earnings of S$14.4 million attributable to its shareholders over the past twelve-months, it would give Lantrovision a price-to-earnings ratio of 5.6. Looking at just these figures, Lantrovision might seem cheap for its would-be acquirer.

Shareholder’s action

Given that most of the company’s key management team have already indicated that they’d vote in favour of the deal, there seems to be little choice left for minority shareholders.

If Lantrovision were to declare any dividends or distributions after 27 January 2016, MIRAIT Holdings has the right to reduce its offering price by the same amount as the declared dividend/distribution.

But, given Lantrovision’s huge cash pile, could both parties consider an exemption from the clause and distribute some of Lantrovision’s cash as a dividend for shareholders? After all, it appears that MIRAIT Holdings is planning to buy the business of Lantrovision and not its cash position.

How will the deal eventually turn out? We‘d have to wait for Lantrovision’s shareholders’ meeting regarding the deal to know the outcome. The date for the meeting is yet to be determined.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns shares in Lantrovision.