This article was recently published on www.nracapital.com and is reproduced with permission


Another one bites the dust - Suntory announces plans to delist Cerebos Pacific Ltd its 82% subsidiary at S$6.60 per share.....

Kevin Scully, executive chairman, NRA Capital. NextInsight file photo

ANOTHER ONE of my Stock Picks (Yield) - Cerebos Pacific Ltd) is now likely to be delisted. 

This is fourth Stock Pick and joins the ranks of Sinomem, Adampak, Allgreen and Juken.

 In an announcement to the SGX, Cerebos indicated that Suntory Group, its 82% shareholder intends to delist Cerebos and will make an exit offer of S$6.60 per share to all minority shareholders.

Cerebos also announced its Q2-2012 results.

While revenue was relatively flat with growth of less than 5%, net profit for Q2-2012 rose 40% to S$22.7mn but if we exclude other income which is the recognition of an insurance claim of $2.7mn, net profit rose about 23.1% to S$20.0mn. 

Still a credible performance which is consistent with its position as a defensive yield play.

What should minority shareholders do and what should they make of the offer ?

First let's look at what the delisting means - Under Rule 1307 - the company can list if 75% of the shareholders present at the EGM vote for it, not more than 10% of the shareholders present vote against it and directors and major shareholders can vote for it.

This means that with Suntory already owning 82% - its likely to go through unless 10% of the 18% free float object. 

This seems unlikely.  The next is whether the exit offer is fair and reasonable - Cerebos has appointed DBS Bank as the IFA for this transacition and as shareholders we should wait for their opinion on the matter before making any decision.

Let me here do my "two cents" quick assessment of the offer.  

I recommended Cerebos because it has consistently been paying S$0.25 in dividends every year and once a year at the year end - this means that if it delists before the end of 2012 - you forego the S$0.25 you are expecting for this FY. 

So the exit offer ex-the 2012 expected dividend is $6.35 ($6.60-$0.25).  

The next and more important is the intrinsic value of the business and the expected dividend stream.

Using $0.25 with a terminal growth of 2% and a reasonable discount rate gives a value that is higher (than exit offer price) for the actual price (check My Stock Picks section). 

Also don't forget the gross cash in Cerebos of $140mn......all in all it looks a little low to me but let's wait for the IFA's opinion.

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