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SYUT - Synutra


writser
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Another Chinese going-private nobody is going to be interested in. Basic checklist:

 

- Is this a real company? Well, they just opened a ~$180m facility in france: link.

- Will the vote pass? Insiders own 63.5%, so no problem.

- Regulatory problems? Looks unlikely to me: small Chinese company listed in US specialized in dairy products.

- Can they cough up the cash? To buy out remaining shares they need to cough up ~$100m. Shanghai Phudong development bank has provided a letter of commitment for up to $150m.

- Termination fee: $6m if the buyers fail to complete the deal. Bit on the small side.

 

Current deal spread: 12%. I assume the company needs 3-4 months to set up an EGM and the deal will close 1-2 months after that. If the deal closes by mid 2017 you are looking at a >25% IRR. I bought a couple of shares.

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  • 3 weeks later...

Preliminary proxy is out (link). Interesting tidbits:

 

The Company does not believe that any material federal, national, provincial, local or state, whether domestic or foreign, regulatory approvals, filings or notices are required in connection with the merger other than the approvals, filings or notices required under the U.S. federal securities laws and the rules and regulations of the NASDAQ Global Select Market and the filing of the certificate of merger with the Secretary of State of the State of Delaware with respect to the merger.

 

On September 9, 2016, at the direction of the special committee, representatives of Houlihan Lokey met with Mr. Zhang in Beijing. At this meeting, representatives of Houlihan Lokey requested that the buyer group meaningfully increase the proposed merger consideration, suggesting that a higher price was warranted based upon, among other things, their preliminary financial analyses and premiums paid in other going-private transactions. Following this discussion, Mr. Zhang, on behalf of the buyer group, offered to increase the price to US$6.05 per share but indicated that it was a “best-and-final” offer. Mr. Zhang also suggested that the parties accelerate the negotiation of the merger agreement and the debt commitment letter such that the parties could sign the merger agreement by the end of September 2016

 

I.e. "I know the price is too low, let me increase it a little bit but then we have to close the deal asap.". Makes sense given that their France plant comes online next year and the company itself expects EBIT to grow sharply - expectations for 2020 are $96m and why would they overstate that number in a proxy for a merger? In fact they lowered it from $104 earlier this year).

 

The majority holder is probably ripping off existing shareholders but that doesn't mean SYUT should trade at a 12% discount to the offer price. If anything he has a large incentive to get the deal done quickly. I still like this quite a bit (relatively speaking, for a Chinese going private transaction. I wouldn't recommend going all-in on this).

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  • 1 month later...

New revised proxy was out a couple of days ago, showing not much news apart from the fact that multiple ambulance chasing lawyers are suing the company for going private (the usual ..). Nevertheless SYUT is up ~8.5% in 2 months and the discount is now a more reasonable ~4%. Given that there is still no date for the EGM and that they filed the definitive proxy for the AGM two months in advance (meeting is March, 17) this could still take 2-4 months.

 

Synutra is still a decent proposition and I continue to hold but it is not as good as it was at $5.30. If there is some panic in the market this can easily drop down 5% or more. I've taken some money off the table (rotated it into ALIOY).

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  • 1 month later...

Definitive proxy filed today. Vote is 28 april, I expect the deal to close in a few weeks after that. Bought a couple of extra shares today. 50% of the minority shareholders have to vote 'yes' but I don't expect much problems as roughly half of them are institutional investors and arbs probably also bought a decent chunk the past few months. And frankly SYUT seems like decent value so if the vote fails (even though I've never seen that happen with these Chinese deals) I don't expect a massacre.

 

FWIW I'm also long KZ. Similar deal, March, 20 vote.

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  • 1 month later...

Looks like some people got a memo that the KZ cashout will arrive tomorrow or something given that shares now trade at $7.49, 1 cent below the cashout price .. I bought at $6.94 in Januari and Februari for an 8% gain in 3-4 months. Decent IRR. I'm assuming the massive bidders know more than I do and did not sell today - expecting a fast cashout.

 

Also sold a little bit of SYUT at $5.95 in the beginning of April. At that price spread is only 1.7%, not extremely attractive given that vote still has to pass and cashout will probably take a few more weeks.

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  • 3 weeks later...

KZ deal was completed two days after my previous post. Synutra deal has been approved by shareholders, stock now trading at the takeout price. The company (and I) expect the deal to be completed this month. Only 59.7% of unaffiliated holders actually voted for the proposal so it wasn't as clear-cut as the stock action suggested.

 

I Bought shares at $5.35 average last November & December for a 13% gain in ~6 months. Decent IRR and I also managed to flip some shares in the meantime (idiotic new ticksize makes that very hard .. )

 

 

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  • 2 weeks later...

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