re: Ann: Possible divestment of Savcor Face b...
I think charting or trending this company is meaningless because the volumes are currently too low.
The big issue for shareholders is whether the proposed sale of FACE is a good deal. We do not have enough information to know this at this stage. On the surface it is all a bit concerning. The drop in price following the announcement reflects the withdraw of any buyers from the market due to all the uncertainty and risk.
Given SAV will only get Cencorp shares as consideration for the sale, one big issue is whether the shares are good value? The CEO, through his private company Savcor OY in Finland, purchased 63% of Cencorp in May last year for 0.08 Euro per share. Cencorp is a small cap company that is thinly traded on the Helsinki stock exchange. It manufactures and develops production automation systems and testing equipment to the telecommunications and electronics industries. There is little up to date information, but Cencorp was not profitable in it's last lodged reports. It's current share price is around 0.16 Euro. The CEO owns about the same proportion of SAV as he does Cencorp, so it makes no difference to him which company FACE sits in. I guess from his perspective the FACE business has more synergy with Cencorp than it does with SAV. The location of FACE obviously makes a big difference to other SAV shareholders because we do not currently hold Cencorp script like the CEO.
At this stage we don't know whether this deal is being done because of pressure from the Chinese banks or because of the CEO's business strategy. On the surface it does not appear very attractive. I don't understand why SAV would give up a manufacturing business at the bottom of it's cycle with significant scope for recovery, for some shares in a loss making Finish company. The $35M price (even if this was cash) seems to be less than the asset value of the FACE factories? Does SAV have to sell at fire sale prices to keep banks happy? What are the benefits to SAV from combining Cencorp and FACE? After the sale, SAV still appears to be left with around $13M FACE debt and may not be able to rely on dividends from Cencorp to pay interest? Currently the FACE business is at least generating the cash flow to pay for this debt.
It will be very interesting to read the experts report when it is released. We can at least be reassured by the fact that the unrelated shareholders will be voting on this deal. You would hope the instituional shareholders will not vote for this deal unless it is good for SAV and them.
We should see SAV's annual profit result this week and this will give us more understanding of the value of FACE.
-------------------------- I am not an advisor. My comments are intended for debate only.
SAV Price at posting:
10.0¢ Sentiment: None Disclosure: Held
