Asustek Computer, the largest shareholder in Taiwan’s Pegatron Corp, on Friday sold close to 20% of its stake in the company, raising NT$4.66 billion ($157 million) in the process.
Taiwan-listed Asustek, which makes computers and other electronics products under the Asus brand, has wanted to trim its stake in Pegatron since 2011 and after a 24.2% gain so far this year, the share price was finally at a level where it was happy to sell. The stock closed at a 52-week high of NT$47.50 on Thursday last week, but fell 1.8% on Friday.
When a shareholder that owns more than 10% of a Taiwan-listed company is planning to sell common shares, the company has to notify the stock exchange at least three days before the transaction. In the past, the share price has started to slip each time Pegatron has filed for a deal, and to prevent that from happening again, the deal launched shortly after the filing was made on Friday afternoon. It was completed that same evening, but since the shares will be crossed on the Taiwan Stock Exchange at the start of trading today the required notice period was met as well.
In the past year, a few other existing shareholders, including German plastics component maker Balda and the chairman of industrial waste treatment company Cleanaway, have used the same strategy to be able to trim their stakes without running the risk of the share price falling before the deal is completed.
Asustek sold approximately 103 million shares, which accounted for 18.7% of its total holdings and 4.5% of the company. The sale will reduce its stake to 19.6% from 24.1%, so even if it has waited for a long time to take some money off the table, it is keeping a significant stake in the company. It will also remain the single largest shareholder in Pegatron, which designs and manufactures desktops, laptops, smartphones, tablets, games consoles and LCD TVs for a number of companies, including Apple.
The shares were offered at a price between NT$45.25 and NT$45.75, which translated into a pretty tight discount of 1.9% to 3.0% versus Friday’s close of NT$46.65. Like in Korea, placements in Taiwan tend to come at tighter discounts than in most other Asian markets, but sources noted that the discount was also underpinned by the fact that the stock is reasonably liquid. And there was some demand for the shares from the holders of Pegatron’s outstanding $300 million convertible bond, which matures in early 2017 but can be put back to the issuer in early 2015.
On top of that, there has been an expectation among investors following the stock that the Asustek sell-down was about to happen at some point given the recent gains.
However, the price was fixed at the bottom of the range for the maximum 3% discount.
The two bookrunners had order indications for about 70% of the transaction before launch and the deal was fully covered within an hour of the 3pm launch, sources said. It was about two times covered in the end with orders from more than 30 investors.
The demand came from long-only international accounts, including a couple of existing shareholders based in the US, as well as a few decent local orders, one source said. Some hedge funds also participated despite the tight discount, although they may have been part of the CB-related demand.
Pegatron’s share price has been doing well in recent months largely because of its connection with Apple — ironic perhaps since Apple itself has been struggling amid concerns about falling demand for its iPhones and about the company’s future strategy. However, Pegatron’s earnings received a boost after it started to assemble and ship the iPad mini in the fourth quarter last year and analysts have argued that Pegatron is poised to become an increasingly important part of Apple’s supply chain.
In addition to the iPad mini, Pegatron also assembles the iPhone 4 and Taiwan media has reported that it is rumoured to be the most likely candidate for assembling the lower-cost iPhone that many speculate Apple will launch this year in a push to gain share in emerging markets.
At the time of Pegatron’s 2012 earnings release in early March, CEO Jason Cheng projected that the company’s shipment of tablets will double to 20 million this year, while the computer business will be flat or decline slightly.
Pegatron’s revenues increased by 46% last year to NT$884.91 billion and its net profit multiplied to NT$6.1 billion from just NT$111.4 million the previous year.
Goldman Sachs and UBS were joint bookrunners for the transaction. Asustek’s remaining shares will be locked up for 90 days.