Abaci's Common Sense Investing

My salute to the tenacity of Senta Wong to rip us off!

For proper introduction and to put things back in perspective before we begin, check out http://abaci-investing.blogspot.com/2006/12/failed-privatization-follow-chairman.html.

WKK (532) was suspended on Mar 19 with a note that there'd be a substantial disposal. At first I thought some private equity funds were buying the PCB business and so it should be good news. But then not a single word came out since. Then I noticed the 2006 results were scheduled for release yesterday and realized probably the Stock Exchange had requested the two announcements to go hand in hand to the shareholders (this was one of the few things the HKEX had done correctly) given the closeness of the two event.

It turned out the buyer was interested in buying everything WKK had, and the buyer was no one other than Senta Wong himself. So this is yet another privatization in disguise and was done in a cheeky manner again. The last offer was timed right before the release of interim results and this time it was right before the final results. The purpose was all the same: to avoid having the latest results, which were excellent, included in the shareholder's circular and to shorten the decision time as much as possible (since there'll be probably be a delay in publishing the circular if the annual report is to be included).

This time the deal is structured as a sale of assets as opposed to a privatization offer, the difference being that the approval threshold is lowered from 90% to 75% of independent vote. And the deal can also fall outside the jurisdiction of the SFC. Since the deal was only marginally voted down last time, Senta Wong must feel pretty confident to succeed this time and hence offer a price ($1.65) only 20% higher than his last offer of $1.38. And to save interest further he even offers part of the consideration paid in promissory note to be settled in cash 3 months after completion (note: in normal takeover deals you would see a stand-by facility arranged by a bank ready at time of offer).

All these moves are really low class acts. If there's a financial or legal adviser behind, shame on them too!

Do I even need to mention the financial results? I guess not much since as you can see Senta Wong is so smart that I can really rely on his judgement.

EPS was up by 37% in 2006 and earnings were $250m. In this sense the offer hasn't really been improved but only reflected the increase in profit, or is it the opposite? The last offer was made at 5.3x p/e of 2005 earnings while the new offer is only made at 4.7x 2006 earnings! This offer is even worse than the last one.

In the results announcement the tone was as downbeat as it could be, citing all the difficulties facing the industry but contradicting all the underlying figures nonetheless. This shows symptom of a divided personality.

I strongly recommend everyone who holds WKK to vote and block this deal. There's no need to even consider any offer below $2 a share.

A side note, from this repeated exercise and that David Webb's buying into Sinotronics (1195), I'd say one shouldn't miss out the PCB industry. Other choices include Meadville (3313), Daishomicroline (567), Hannstar (667), or the upstream Kingboard twins (1888) and (148). Logical extension includes capacitor maker Man Yue (894). Pick wisely.

DISCLOSURE: I hold 532, 1195, & 894 at time of writing.