k1 Ventures recently received a voluntary conditional cash offer for all of its shares from GKB Holdings at $0.135 per share. GKB Holdings' shareholders are the major shareholders of k1 Ventures.
At $0.135 a share, the offer is being viewed as too low by investors -- and falls far short of the 30 cent valuation by DMG & Partners. See below...
If GKB Holdings receives valid acceptances of not less than 90% of the shares (other than those shares already held by the Offeror, its related corporations or their respective nominees as at the date of the Offer), the Offeror will have the right to compulsorily buy over all the remaining shares.
The offeror intends to exercise its rights of compulsory acquisition.
k1 Ventures has appointed an independent financial adviser who will advise minority shareholders and independent directors on the deal.
DMG upgrades valuation of k1 to 30 cents a share.
Analyst: Goh Han Peng
We are upgrading our valuation of k1 from $0.24/share to $0.30/share, as we factor in the US$100m investment in the preferred shares of Guggenheim Capital. We had omitted this investment earlier in our valuation.
In mid-2011, k1 had invested US$100m in US-based Guggenheim Capital, a privately-held financial services group with more than US$100b in assets under management (AUM).
k1 invested in the preferred shares of Guggenheim with a dividend rate of 7% and has detachable warrants to convert into equity in Guggenheim.
Structuring deals with favourable risk-reward profile, in this case by investing in the preferred shares of Guggenheim, with option to share in the equity upside, has been a hallmark of the Green management team.
We remain optimistic that value would be gradually unlocked as the company embarked on managing its existing investments for eventual exit and the distribution of excess cash back to shareholders.
We raise our TP for the stock to $0.21/share on the same 30% discount to SOTP valuation.
Excerpts from i3investor.com
k1 Ventures - A low-ball offer
The majority of k1's portfolio comprised of investments in privately-held companies.
Disclosure of financial data for these privately-held investments is either limited or not publicly available.
This makes it difficult for investors to ascribe valuations to its investments and establish a fair value for the stock.
The long gestation period for these private investments to bear fruit also deter some prospective investors.
To its credit, k1's investments have done creditably well under the current management team led by Steven Green. Following a series of successful investments, the company has, since 2005, distributed more than $470m, or 23 cents/share, back to shareholders.
The remaining portfolio includes:
1) a 80.1% stake in Helm Holding Corporation, a railcar and locomotive leasing company based in the United States;
2) a 12.2% stake in Knowledge Universe Holdings (KUH), the largest pre-school education service provider in the United States;
3) a US$100m investment in the preferred shares of Guggenheim Capital, a financial services firm with US$100b under management;
4) 2.3m shares in McMoRan, an E&P company based in the U.S.;
5) an undisclosed stake in China Grand Auto, the largest auto dealership group in China.