This article first appeared in The Edge Financial Daily on December 20, 2017

IPOH: Hovid Bhd managing director David Ho Sue San said the offer price of 38 sen per share for the takeover of the pharmaceutical company cannot be raised as the deal has to churn out “reasonable returns” for its offerors.

On Oct 9 this year, Ho and private equity firm TAEL Two Partners Ltd — via its special purpose vehicle Fajar Astoria Sdn Bhd — made a voluntary takeover offer of 38 sen per share and 20 sen per warrant for the rest of Hovid shares not owned by them. At those prices, Fajar Astoria is expected to fork out some RM243.1 million for the deal.

“Everything has a value, and the investment fund also has certain returns that they are looking for based on [Hovid’s] profitability and so on; they feel it is a reasonable deal [at] this kind of price,” Ho, who is also the chairman of Hovid, told reporters after the group’s annual general meeting here yesterday.

The joint offerors also expressed at the time of offer that they do not wish to maintain the listing status of Hovid.

On what would be the alternative plan should the acceptance level of the shares fall below the 90% shareholding threshold required to take the company private, Ho declined to comment.

“We will look at the level of acceptances [on the closing date] and then decide. Let’s take it one step at a time

“At the moment, we do not see much value for us to maintain the listing status of Hovid,” he said.

On whether additional capacity to be recognised from its Chemor plant in Perak could alter earnings capability of Hovid and possibly justify its listing, Ho said this will be gradual as things take time in the pharmaceuticals industry.

“Yes, if we are successful [in getting regulatory approvals], it would double our tablet and capsule [capacity]. But this will not happen so fast as there is a lot of red tape to overcome and even if [we] can bring it on stream, we do not know how the share price [would react],” he explained.

Hovid was trading at levels of 53.7 sen on April 21, 2015, before dropping to as much as 30.2% to 37.5 sen a year later on May 30, 2016. When its two manufacturing licences were revoked by the pharmaceutical services division of the health ministry on Jan 9 this year over compliance issues, some investors panicked, dumping their shares and resulting in Hovid’s share price to fall to a low of 24 sen on the next day after the announcement.

“There is still value in the company, but it would take us a while to get back where we were before the suspension happened,” he said.

As for the minority shareholders, Ho pointed to what independent adviser AmInvestment Bank Bhd for the takeover offer had said: “at 38 sen per share it is fair and reasonable”.

“If you look at the [share price of Hovid for] the entire 12 months [before the deal was made], the average share price never reached 38 sen. So, I think 38 sen is already at a high price compared with (its trading price in) the past 12 months.

“Of course, it is not as high as the peak when Hovid was trading at the 50 sen level, but circumstances now are very different,” he said.

When the offer was made in October, the joint offerors held some 33.72% of the company. Since then, the acceptance condition for the offer has been lowered twice — from 90% originally to 75% and then to 67%.

Similiarly, the closing date for the offer was extended three times — from the original deadline of Nov 20 to Dec 4, and then to Dec 7 and finally to Dec 29.

As at Dec 15, the joint offerors held 62.32% of Hovid shares, and Ho is confident the group will achieve the acceptance threshold of 67% of total shares by the Dec 29 closing date.

“I think 67% is a much easier target to reach, and we are quite confident to reach that milestone ... to go above that, we will have to wait and see,” he said.

Hovid shares closed unchanged at 37.5 sen yesterday, bringing a market capitalisation of RM307.83 million.