Acer continues its sell-down of Wistron

The $103 million deal achieves a tight discount despite sizeable share price gains over the past four months.
In what has become to be regarded pretty much as an annual event, Acer last night sold $103.25 million worth of Global Depositary Receipts of Wistron Corporation, reducing its remaining stake in the electronics contract manufacturer to 7%.

The sale, which was arranged by Citigroup, was priced at the bottom of the indicated range which suggests some investors at least feel there is more juice left in the stock despite recent gains.

The share price has risen 35% from NT$37 in mid-November to a close of NT$50.10 yesterday. True, the price had been on a decline from its early January high of NT$50.90 on the back of weak shipments in the first quarter, but it has made up for nearly all of that in the past two weeks when it has rallied 16% after securing new orders.

The optimism was echoed in a research note issued by Morgan Stanley on Tuesday this week in which it upgraded its recommendation for Wistron to ôoverweightö from ôequal-weightö based on a projection of increasing orders for both notebooks and LCD TV panels. This should ensure the quarterly profit growth (which has been negative since the fourth quarter last year) bottoms out in the second quarter, it said.

Morgan Stanley raised its target price to NT$58 from NT$46.50 and noted that it expects the market to re-rate Wistron on the back of recent notebook order gains from Acer, Dell and Hewlett Packard, which should ensure growth momentum into 2008, and a continued improvement in return on equity over the next couple of years.

ôAdditionally, Wistron is among the forerunners in Taiwan to tap into the fast-growing LCD TV assembly markets, which is likely to become the next growth driver despite lower margin and smaller profit contributions initially,ö analysts Ellen Tseng and Grace Chen said in the report.

Acer offered seven million GDRs û each accounting for 5% of the company - at a price between $14.75 and $15. They were priced at $14.75, which equalled NT$48.80 in local price terms. The GDRs are extremely thinly traded and given that they are completely fungible with the underlying common shares, most investors were expected to swap them for the more liquid domestic shares straight away.

US offshore investors accounted for about half the demand, with another 45% coming from Asia. European investors showed little interest, accounting for only about 5% of total orders, sources familiar with the transaction said. About 20 investors came into the deal.

Acer, a computer hardware manufacturer also listed in Taiwan, will see its stake trimmed by five percentage points from 12% as a result of this deal. It will have a 90-day lockup on its remaining shares.

In April last year, Acer sold $128 million of GDRs at a 1.45% discount to the underlying Taiwan stock, which traded at NT$41.40 at the time. That sale was arranged by Credit Suisse.

Wistron was formed from AcerÆs design and manufacturing service unit in 2001 and is now one of the leading laptop manufacturers for branded vendors in the country. It also makes X-box 360 consoles and is aiming to boost its bottom line by focusing more on high-margin items like personal-digital-assistants and LCD panels.
¬ Haymarket Media Limited. All rights reserved.
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