By: Tahir Abbas, Arif Habib Limited
Bestway Cement Limited (BWCL) announced entering into a share purchase agreement on July, 24 2014 to acquire ~75.9% ownership of Lafarge Pakistan Cement Limited (LPCL) at an enterprise value of USD 329mn (EV/ton of USD137), resulting in a purchase consideration of USD218mn, which translates into a per share value of approximately USD 0.197/sh of LPCL.
As per KSE notice, BWCL has unveiled tender offer to acquire 176mn shares of LPCL (50% of remaining free float) in accordance with the statutory requirement of SECP at the price USD 0.199/sh. The cumulative stake of BWCL in LPCL will be 87.93% post acceptance of tender offer. This would result in cornering of the stock, which may keep its share price raised up.
We believe the deal price for LPCL transaction should yield a short-term arbitrage opportunity. On a rough-and-ready basis, we have run a return sensitivity on different tender offer acceptance level coupled with various post-transaction expected market prices. At a 50% acceptance level and post-transaction selling price, ranging from PKR 17/share to PKR18.5/share, a range of returns between 6% and 10% (23% and 40% annualized) is expected. Below table summarizes the sensitivity analysis of expected gains at 50%, 60% and 70% of the tender acceptance levels: