TA Global - low risk event driven trade
This is in relation to $TAGB / 5158 (TA GLOBAL BERHAD) and $TA / 4898 (TA ENTERPRISE BERHAD) Enterprise proposed acquisition. There're a couple of ways one can play this event, but would just like to focus on the simplest one of all, a chance of an M&A Arbitrage, via going long TA Global and accepting TA Enterprise cash offer at RM 0.28.
1) The Story thus far...
a) On 12th Feb 2020, TA Enterprise Berhad, announced that it's going to take all remaining TA Global shares it doesn't own.
b) On 10th April 2020, TA Enterprise Berhad announced that SC approved the application
c) On 6th May 2020, TA Enterprise Berhad "shamelessly" (notion used by many minorities) asked for withdrawal of the application due to COVID19
d) On 2nd June 2020, after much backlash from minority group, SC had decline the application of withdrawal
2) The Proposal...
On 12th Feb 2020, TA Securities Holdings Bhd on behalf of TA Enterprise Berhad, announced the following:
(i) proposed acquisition of additional interest in TA Global Berhad via a proposed conditional voluntary take-over offer by TAE to acquire up to 2,119,389,362 ordinary shares in TAG (“Offer Shares”), representing up to 39.83% equity interest in TAG, for a consideration of RM0.28 per Offer Share which shall be satisfied by way of the following:
(a) a cash consideration of RM0.28 for every 1 Offer Share surrendered ("Cash Option"); or
(b) a share exchange based on an exchange ratio of 0.4211 new ordinary share in TAE (“TAE Shares”) to be issued at an issue price of RM0.665 each for every 1 Offer Share surrendered; and
(ii) proposed issuance of up to 550,539,554 new TAE Shares at an issue price of RM0.665 each to be subscribed by Datuk Tiah Thee Kian to fund the Cash Option pursuant to the Proposed VGO.
3) Background...
TA Enterprise owns 60.17% of TA Global, The Tiah family owns another 15.13% from their personal holding. The Tiah family owns 41.92% of TA Enterprise.
4) The Play
There're several ways to play this event, but would just like to focus on the simplest one of all, to go long TA Global, hoping for acceptance from TAE shareholders in upcoming EGM and accepting TA Enterprise cash offer at RM 0.28
5) The Risk & Return
At 23c, a potential return of 21.74% if the entire exercise is completed. Assuming it's to be completed before end of year, that's a total annualised return of 38.90%.
The biggest risk at the moment is if TA Enterprise shareholders will approve the acquisition in upcoming EGM or not.
6) Rationale of the trade
- Technically, since its existance (almost a decade), TAGB never close below RM 0.19 (March 2020) when COVID19 strike.
- It also have a PB ratio of 0.39x (10 year average of 0.60x).
- TA Global RNAV will be higher imo - they own more than 20 properties in their portfolio. Means their asset after revaluation should be higher
- TAG also consistently in the past 5 years, generate net income of above RM100m every year
- As a TA Enterprise shareholder, buying TAG at 28c (when IPO was at 50c, should be a "good enough" deal.
- Risk is if Tiah's family - try and sabotage the EGM and make the proposal not to go through, however looking at the current improving COVID19 situation, and the criticism they have received of late, would think this is unlikely. TA Enterprise is also having a great year.
7) Favorable play?
- AT 23c, upside of 5c, and downside of 2-4c with alot of fundamental cushion at the bottom
- I would think that there's a 75% chance of the deal going through, 25% of it not to go through.
- Taking in my probability and % return, my expected return is +12%, even if probability is at 5050, it's still a +2.2% expected return
- Summary: I'm queing to buy TA Global at 23c for this calculated low risk event driven trade.
Anyone else looking at this? Please let me know what you guys think! I might be missing some important features. I had a good experience on my last event driven trade in KLSE ( when I long $SPB / 1783 (SELANGOR PROPERTIES BERHAD)), hopefully this will be another good one.