The deal is expected to be completed in the fourth quarter of 2008 and values 100% of Bright World at about $263 million. The transaction is being completed at a multiple of 14.6 times the estimated Ebitda for 2008.
Bright World is headquartered in Danyang City in China's Jiangsu Province and manufactures metal stamping machines as well as board cutting machines, bending machines, Computer Numeric Control (CNC) and other complementary heavy machine tools. Its customers are located mainly in the Pearl River Delta, the Yangtze River Delta and Bohai Bay Area and include automotive, home electrical appliances and computer and telecommunications firms.
CHAC is a US-listed investment vehicle set up with the intention of acquiring companies in Asia. It is offering Bright World's minority shareholders S$0.70 ($0.51) per share in cash for their combined 22.6% stake. In a structure that is becoming increasingly common in delistings as it brings hedge funds into play, CHAC will increase its offer price to S$0.75 per share if it succeeds in crossing the 90% threshold. To delist Bright World in accordance with Singapore Exchange (SGX) guidelines, CHAC must accumulate 90% of the minority shares (i.e. an additional 20.3% of the company).
OCBC issued a research update on Bright World yesterday in which it suggested shareholders tender their shares since an offer price in the range of S$0.70 to S$0.75 per share represents a premium of between 89% and 103% over Bright WorldÆs latest traded price of S$0.37. OCBC noted that Bright World traded as high as S$0.70 just after its initial public offering in 2006, but went on to comment that, with rising raw material and energy prices in China, shareholders may have a long wait before the share price reaches those levels again.
World Share is a holding company controlled by Wang Wei Yao, the non-executive chairman of Bright World. World Share will receive 19.9 million shares in the acquisition vehicle, CHAC, in exchange for its 77.4% stake in Bright World. The shares represent a 50% stake in CHAC. Subject to Bright World exceeding certain stipulated profit targets, World Share will be entitled to increase its shareholding in CHAC up to 64%.
Depending on how many shareholders tender in the general offer and how many shares are finally issued to World Share, the total transaction cost for CHAC will be between $200 million and $404 million.
Since 2005, Bright World has enhanced its focus on high performance stamping machines which provide higher margins and have better growth prospects than conventional stamping machines. This has resulted in Bright World growing revenues over the period at a compound annual growth rate of 33.5%, while net profits have improved by 28.3% and Ebitda by 31.1%.
As part of the agreement between CHAC and the controlling shareholder of Bright World, CHAC will have a right of first refusal to acquire four other companies controlled by Wang Wei Yao that manufacture agricultural machinery, auto parts and components, lawn equipment and construction equipment.
CHAC is a so called ôblank check companyö with the explicit purpose of buying companies with operations in Asia. It was founded in 2007 and listed on the American Stock Exchange in November that same year. Bright World will be CHACÆs first acquisition.
Bright WorldÆs shares were suspended from trading on the SGX on Monday pending the takeover announcement. They resumed trading yesterday and gained 80% to close at S$0.665.