Perennial delisting

Perennial #delisting (40S,SI) announced that they are going to be delisted from SGX. The majority shareholder will offer a slight premium of $0.95 per share to purchase shares held in public hands.

source: Perennial

Prior to this announcement speculation of Perennial has already begun since mid May. See the post here.

“…said in an evening disclosure that it has been notified that some substantial shareholders are reviewing the options in relation to their holdings in the property company”

Market is information-efficient. News are instantly dissipated and assimilated by reaction from various investors.

On May 18th, Perennial share price soared significantly, added 7.5 cents or 14.8% to $0.58 as the market assimilates the potential shareholding changes implied by the news.

Afterwards, the share price stays pretty stable awaiting further news or confirmation, until of course when Chief Executive finally affirmed on Jun 13th of the impending deal. See here.

“In a statement released late Friday night, Perennial announced that an entity called Primero Investment Holdings is offering S$0.95 a share in cash for all the shares of Perennial Real Estate Holdings…(to take Perennial private)”

Trading session resumes today Jun 15th, the stock is seen to surge in celebration of this news. From last closing price of $0.69, it is trading at vicinity of the ceiling price $0.945 (I call this ceiling price because it is the maximum price to pay to make a minimum profit of 0.5 cent per share).

Market Depth Chart showing most people are willing to pay 94 cent.

In fact, most bidding volume placed at 94 cent hoping for 1 cent profit. In terms of percentage, this is just about 1% gain (excluding brokerage fee). This proposal of buying back outstanding shares seems to be the confirmed outcome, thanks to its ownership structure which states that the insider (i.e. its executive or management) already owned most of the company:

source: simplywallst

At this bid-ask spread, how would average investors like us benefit? Little, indeed. Imagine you fork out $1,000, you can only gain $10. That’s not even enough to cover brokerage fee (typically $25 for buy, $25 for sell totaling $50).

To those who entered a long position prior to May 18th, congratulations, you have somehow seen the direction or intention of the company share and you stand to gain at least 88% of your capital.

Those who longed prior to Jun 13th, your entry price might have been 65 to 70 cent, it is still in good position to reap in 35%-46% profit.

To wrap things up:

  • How to ‘predict’ a listed company intention. My personal theory: significant movement/disposal of company’s holdings of other assets/interests. This seems to be true for those who bought share after closely following market announcements:
    • Disposed all 30% stakes in 111 Somerset on Apr 16th (link)
    • Disposed 50% stake in AXA tower on May 6th (link). Those who predicted these signs as cause for taking the company private indeed stood to gain the most, there is risk that these signs might be wrongly interpreted.
  • Not too bad of a gain, you were able to enter the counter on and after May 18th where company declared intention to privatize. Even with no information of what the buyback price would be. So, medium risk.
  • The least risk presented itself when it finally announced on Jun 13th, you still could gain if you entered on Jun 15th, albeit a much lower margin of 1%.

“Margin of gain decreases when risk is lowered with more certainty added in company’s direction”.

source:giphy

#Perennial #riskreward #delisting

Published by average_investor

trained engineer by career self-learnt investor by interest

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