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What Investors Should Know About The Privatisation Offer For Auric Pacific Group Limited

There have been a series of privatisation offers for Singapore-listed companies over the past one to two years and it appears that the trend is not ending anytime soon with Auric Pacific Group Limited (SGX: A23) being the latest takeover target.

Auric Pacific is perhaps best known as the baker behind the Sunshine Bread brand and as the operator of the Food Junction food courts and Delifrance Cafés in Singapore.

This morning, the company announced that it has received a voluntary conditional cash offer from Silver Creek Capital, an investment vehicle jointly owned by Dr Stephen Riady and Dr Andy Adhiwana.

Dr Riady is an executive director of Auric Pacific and a member of the Indonesian conglomerate the Lippo Group. He can also be considered as the largest shareholder of Auric Pacific, as he currently controls nearly half of the company’s shares (49.28% to be exact). Dr Adhiwana is both an executive director and the chief executive of Auric Pacific and indirectly owns 27.44% of the company’s total shares.

Silver Creek Capital is offering S$1.65 in cash for each of Auric Pacific’s shares that are not controlled by Dr Riady and Dr Adhiwana. The offer price represents a premium of 13.4% from Auric Pacific’s closing price yesterday.

The offer announcement stated that the reason for the offer is to reduce the compliance costs associated with Auric Pacific’s status as a listed company. Another reason is to allow the company’s minority shareholders to have an opportunity to exit their investments at a premium; the offer price is higher than what Auric Pacific’s shares have been trading at since December 1999.

In 2015, Auric Pacific made an impairment of intangible assets of S$37.2 million due to a restructure of its business. Largely as a result, the company’s profit attributable to shareholders for that year came in at a negative S$40.8 million, down significantly from the positive S$231,000 seen in 2014.

The company seems to have turned the corner as it had posted a profit of S$7.5 million for the first nine months of 2016. The company also has a good balance sheet, with a net cash position (total cash minus total debt) of S$81 million.

If we back out Auric Pacific’s S$81 million in net cash from Silver Creek Capital’s offer price of S$1.65 per share, the company is only trading at an annualized price-to-earnings (P/E) ratio of around 10. If we use Auric Pacific’s peak earnings of S$14.6 million that was reached in 2012, the company would have a P/E ratio of just 7 at the offer price.

Auric Pacific’s shares are trading at S$1.65 each as of the time of writing (2:40 pm).

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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 contributor Stanley Lim doesn’t own shares in any companies mentioned.