Earlier this month, Eu Yan Sang International Ltd (SGX: E02), a retailer of traditional Chinese medicine (TCM), announced that its management team is planning a privatization offer together with two other investors.
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A consortium, made up of TC-TCM LP, Blanca, and eight other shareholders of Eu Yan Sang, had offered S$0.60 per share for minority shareholders’ stakes in the company.
TC-TCM LP is an investment holding company set up by Danny Koh Thong Meng, a private equity investor. TC-TCM LP also counts UOB Venture Management as one of its investors. Meanwhile, Blanca is an indirect wholly-owned subsidiary of Singapore’s sovereign wealth fund, Temasek Holdings. TC-TCM LP and Blanca have a 42% and 30% stake, respectively, in the consortium.
The remaining 28% is shared among eight existing shareholders of Eu Yan Sang with Richard Eu Yee Ming, Eu Yan Sang’s current chief executive, taking the lead.
According to the offer document, there are a few reasons why the consortium wants to privatise Eu Yan Sang: (1) The company’s shares have had low trading liquidity, and (2) The compliance costs to the company for maintaining its listing status was getting too heavy. Moreover, the offer price of S$0.60 per share also represents a 16.5% premium to the volume-weighted average price (VWAP) for Eu Yan Sang in the three months prior to the privatisation announcement.
At the moment, owners controlling over 63% of the total number of Eu Yan Sang’s issued shares outstanding have agreed to the offer. Based on the offer price, the company would be valued at around S$270 million on the whole and 1.8 times its tangible book value.
It’s worth noting that Eu Yan Sang’s earnings have been declining for a number of years now, from S$25 million in fiscal 2011 (year ended 30 June 2011) to S$15 million in fiscal 2014, and then to a loss of S$3.0 million over the last 12 months. Will privatising the company give it more flexibility in turning its business around?
For minority shareholders of Eu Yan Sang, they wouldn’t be able to reap large benefits from the possible turnaround of the company if it does get privatized.
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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 any companies mentioned above.