What Investors Need To Know About Ron Sim’s Increased Offer For OSIM International Ltd’s Shares

Editor’s note: This article had previously made the error of stating that Ron Sim can compulsorily acquire OSIM if he controls more than 90% of the total shares of the company. The error has been corrected with further explanations added that are given in italics within square brackets. The Fool deeply regrets the error. 

OSIM International Ltd (SGX: O23) surprised the market last month when it announced that its founder/chairman/chief executive Ron Sim had offered to take the company private at a price of S$1.32 per share.

At that time, Sim was already the majority owner of OSIM with a stake of over 68%. The offer price of S$1.32 had represented a 31.8% premium to the 1-month volume-weighted average price for OSIM’s shares.

While a 31.8% markup seems high, it’s worth noting that the offer price is less than half of the all-time high of over S$2.80 that OSIM’s shares were trading at back in 2014. The company reasoned that the offer was a great way for minority shareholders to cash out at a “significant premium over the prevailing share price amidst challenging market conditions.”

But, based on the latest data, it appears that minority shareholders are not too excited by Sim’s privatization offer: As at 5pm on 4 April 2016, only 841,401 shares of OSIM – or merely 0.11% of the company’s total shares – have been tendered. A prominent local financial blog had actually did some valuation work on OSIM’s shares recently and its conclusion is that Sim might be shortchanging the company’s minority shareholders with the previous buyout offer of S$1.32 per share.

The unenthusiastic response from OSIM’s minority shareholders might have been a big factor that prompted Sim to raise his offer price for the privatisation. This morning, OSIM announced that Sim has hiked his buyout price to S$1.39, a 5.3% increase from the previous offer.

So, will the higher offer price entice the current crop of OSIM’s minority shareholders to cash out of their investment in the company? If not, what happens next?

I can think of two possible scenarios right now.

One, if OSIM’s minority shareholders are attracted to the latest offer price of S$1.39 and Sim is able to acquire more than 90% of the total shares of the company [that are owned by the minority shareholders], he would be able to exercise the right to compulsorily privatize the firm.

Second, in the announcement this morning, it is stated that the offer price of S$1.39 per share is final and that no more revisions would be made. So, if OSIM’s minority shareholders are still unwilling to tender their shares to Sim, the privatization exercise would fail and the company would continue as a listed company in Singapore’s stock market. But if that is the case, there is a chance that OSIM’s shares may fall back to a price of around $1.00, a level that the shares were trading at before the buyout hoopla started.

Foolish Summary

So how would the OSIM buyout saga end? Would Ron Sim be able to privatize his company or would minority shareholders hold on to their investments? I have no crystal ball for this matter. Only time will tell.

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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 does not own shares in any companies mentioned above.