stahleyp Posted December 26, 2012 Share Posted December 26, 2012 Anyone take a look at this yet? The stock is currently at a $1.02 but they have a tender to buy shares at $1.20. Chou has a pretty big position in it around 7% of assets in Chou Opportunity and Royce and Brandes also have a bit. The directors and executives stated that they are not tendering their shares. I'm just wondering why they would offer $1.20 for the tender if it's only trading around $1. Any ideas? Link to comment Share on other sites More sharing options...
Hielko Posted December 26, 2012 Share Posted December 26, 2012 The tender offer price doesn't have to be related to intrinsic value: they can also buy back shares at a premium as a way to return cash to shareholders (wish more companies would do this: no reason to pay dividend taxes...) Link to comment Share on other sites More sharing options...
stahleyp Posted December 26, 2012 Author Share Posted December 26, 2012 This might be a really dumb question, but why wouldn't they just buy on the open market? Link to comment Share on other sites More sharing options...
Hielko Posted December 26, 2012 Share Posted December 26, 2012 Limited liquidity is usually the reason to do a tender offer. Hard to buy back a significant percentage of the market cap without a tender offer, and if you don't offer a premium there is no incentive for shareholders to sell their shares. This is not necessary related to the point I raised above, but given the fact that management is not tendering they probably think the intrinsic value of the shares is higher or at least equal to the tender offer price. Link to comment Share on other sites More sharing options...
stahleyp Posted December 26, 2012 Author Share Posted December 26, 2012 thanks man. appreciate the insight! :) Link to comment Share on other sites More sharing options...
no_free_lunch Posted December 27, 2012 Share Posted December 27, 2012 The tender is for up to $1.20 a share, not for $1.20 a share. They buy the 25 million shares that are tendered at the lowest price. If you buy the stock for $1.02, tender at $1.20 then there is a chance there are lower bidders and will still have your shares. There are 155M shares outstanding, so 25 million is only 1/6 of shares outstanding. Based on that, it could very well go lower than the max. Link to comment Share on other sites More sharing options...
Green King Posted December 27, 2012 Share Posted December 27, 2012 i look at it awhile back. It's trading below cash. If the cash is real you get free money. In terms of their current business i am not sure about so i passed. Since it is in China and dependent on the Chinese government imitative and the economics of the business is unknown. For now. If anyone has insight please share. Link to comment Share on other sites More sharing options...
wknecht Posted December 27, 2012 Share Posted December 27, 2012 The tender is for up to $1.20 a share, not for $1.20 a share. They buy the 25 million shares that are tendered at the lowest price. If you buy the stock for $1.02, tender at $1.20 then there is a chance there are lower bidders and will still have your shares. There are 155M shares outstanding, so 25 million is only 1/6 of shares outstanding. Based on that, it could very well go lower than the max. Sorry, where does it say up to $1.20? The Offer to Purchase document says "at a purchase price of $1.20 per share" (http://sec.gov/Archives/edgar/data/1030471/000104746912010882/a2211998zex-99_a1i.htm). And I didn't see an amendment with different language or a price range. Assuming for the moment that it's at $1.20, I don't get what the catch is. The risk seems to be that it gets way oversubscribed and the shares simultaneously collapse. They report $108mm of cash in the US, and have repurchased $13mm of stock the last year or so already. Maybe folks are worried about accounting issues? I don't really know anything about the company, but at first glance they don't look like crooks, they've been losing a lot of money. Link to comment Share on other sites More sharing options...
wknecht Posted December 27, 2012 Share Posted December 27, 2012 I should clarify - I was talking about buying and then tendering to the company, not buy and hold. Link to comment Share on other sites More sharing options...
benhacker Posted December 27, 2012 Share Posted December 27, 2012 wk, Assuming for the moment that it's at $1.20, I don't get what the catch is. The risk seems to be that it gets way oversubscribed and the shares simultaneously collapse. They report $108mm of cash in the US, and have repurchased $13mm of stock the last year or so already. Maybe folks are worried about accounting issues? I don't really know anything about the company, but at first glance they don't look like crooks, they've been losing a lot of money. Given the shares are trading at $1.02, I would expect 80-90% of the share base to tender (only large, long term holders who feel $1.20 dramatically undervalues the company *and* feel that UTSI is one of the best bargains around won't tender...). If that happens, you will get ~20% of the shares you buy taken out at $1.20 given the oversubscription to the tender. So you have to bet that the price after the tender won't drop a $0.04, otherwise you lose all your profit. If you feel that UTSI is undervalued and you don't mind owning the name at a $1.00, I think it's a decent deal (or you have reason to believe that aside from management, many others won't tender for some reason), but you will see a massive oversubscription with almost near certainty here. It may still be a good risk reward, I don't follow UTSI at all. Ben Link to comment Share on other sites More sharing options...
no_free_lunch Posted December 28, 2012 Share Posted December 28, 2012 wknecht, You are correct, I misread the release and thought it said up to $1.20. Re-read it and indeed it is at the fixed price of $1.20. Link to comment Share on other sites More sharing options...
king888 Posted December 28, 2012 Share Posted December 28, 2012 The buyback is not effective for illiquid stocks because company can't buy more than 10% for average daily volume in the past 30 days . UTSI is cheap because of China discount. But it actually has businesses outside China as well. I bought when it dipped below $0.90 but sold out around $1.00 .Because I believe another Chinese stocks has better risk/reward profile such as WH (going private offer at $3.00 and Oaktree as a major shareholder, trading at 0.18x PB ) . Link to comment Share on other sites More sharing options...
Green King Posted December 28, 2012 Share Posted December 28, 2012 The buyback is not effective for illiquid stocks because company can't buy more than 10% for average daily volume in the past 30 days . UTSI is cheap because of China discount. But it actually has businesses outside China as well. I bought when it dipped below $0.90 but sold out around $1.00 .Because I believe another Chinese stocks has better risk/reward profile such as WH (going private offer at $3.00 and Oaktree as a major shareholder, trading at 0.18x PB ) . How do you know they are real and not manipulating the stock ? I would love to see how. TIA :D Link to comment Share on other sites More sharing options...
king888 Posted December 28, 2012 Share Posted December 28, 2012 The buyback is not effective for illiquid stocks because company can't buy more than 10% for average daily volume in the past 30 days . UTSI is cheap because of China discount. But it actually has businesses outside China as well. I bought when it dipped below $0.90 but sold out around $1.00 .Because I believe another Chinese stocks has better risk/reward profile such as WH (going private offer at $3.00 and Oaktree as a major shareholder, trading at 0.18x PB ) . How do you know they are real and not manipulating the stock ? I would love to see how. TIA :D Hi Green King, I visited their plant in Rayong ,Thailand by myself. And I also talked with plant worker and security before I met the manager. But this UTSI thread so I better answer your question on WSP's thread here http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/wh-wsp-holdings Link to comment Share on other sites More sharing options...
wknecht Posted December 29, 2012 Share Posted December 29, 2012 wk, Assuming for the moment that it's at $1.20, I don't get what the catch is. The risk seems to be that it gets way oversubscribed and the shares simultaneously collapse. They report $108mm of cash in the US, and have repurchased $13mm of stock the last year or so already. Maybe folks are worried about accounting issues? I don't really know anything about the company, but at first glance they don't look like crooks, they've been losing a lot of money. Given the shares are trading at $1.02, I would expect 80-90% of the share base to tender (only large, long term holders who feel $1.20 dramatically undervalues the company *and* feel that UTSI is one of the best bargains around won't tender...). If that happens, you will get ~20% of the shares you buy taken out at $1.20 given the oversubscription to the tender. So you have to bet that the price after the tender won't drop a $0.04, otherwise you lose all your profit. If you feel that UTSI is undervalued and you don't mind owning the name at a $1.00, I think it's a decent deal (or you have reason to believe that aside from management, many others won't tender for some reason), but you will see a massive oversubscription with almost near certainty here. It may still be a good risk reward, I don't follow UTSI at all. Ben That's clear, thanks for putting the math out there Ben. Not having a view of the business, like you said, I guess it comes down to whether 80-90% is a reasonable expectation or too conservative. It seems 18.1mm shares (13% of the shares outstanding) were sold to a few large investors as part of a private placement. These shares have to be registered to be sold (and don't appear to have been), but I was having trouble understanding if they need to be registered to be tendered. In any case, assuming those shares and insider's are the only ones held, that only gets down to 83%. The situation doesn't look too attractive to me at over 50%. I have no reason to think 50% or lower is more reasonable, and it seems the language of the offer is actually directed at a few large shareholders, so I'm going to pass on this. Link to comment Share on other sites More sharing options...
Hielko Posted February 12, 2013 Share Posted February 12, 2013 The tender offer, that was the source of this discussion, was completed last month. Think this transaction added a lot of value for remaining shareholders. The company has now ~$1.56 in cash per share and no debt, and with the shares back at ~$0.98 I think it's currently a pretty good deal, although not without risks given the historical financial performance of UTSI. Wrote some of my thoughts on my blog @ http://alphavulture.com/2013/02/12/ugly-but-cheap-utstarcom-holdings-corp-utsi/ Link to comment Share on other sites More sharing options...
matjone Posted March 31, 2013 Share Posted March 31, 2013 Is anyone doing the arbitrage on this? Shah/Lu have made an offer for $3.20. Link to comment Share on other sites More sharing options...
nnayyar Posted April 2, 2013 Share Posted April 2, 2013 Some quick preliminary numbers on this deal: Current PX = 2.78 Deal = 3.20 Break Price = 0.25 (guess) Would assume if it breaks it's going to 0 but there may very well be cash there... Days to completion ~ 240 days Implied Probability = 86% Gross Return = 15% Annualized Return = 19.5% (2% margin rate) This a non-binding proposal so there's no discussion on timing, where financing will come from (equity & debt said in the filing), etc If anyone feels strongly that company is not a fraud other then the owners, it represents a pretty attractive return... Link to comment Share on other sites More sharing options...
Hielko Posted April 2, 2013 Share Posted April 2, 2013 Break Price = 0.25 (guess) Would assume if it breaks it's going to 0 but there may very well be cash there... I would like to see this deal fail at the current offer price, and I would suspect that a large number of shareholders feel (and will vote) similar. The deal not going through isn't necessarily a massive negative event. Link to comment Share on other sites More sharing options...
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