Meadville surges 42pc on TTM deal
Meadville Holdings, majority-owned by the family of Chief Secretary Henry Tang Ying-yen, was the biggest gainer on the Hong Kong stock market yesterday on news it would delist and sell its printed circuit board business to Nasdaq-listed TTM Technologies for US$521 million.
Meadville closed 41.9 per cent higher at HK$3.05 when trading of the stock resumed. It rose 47.9 per cent to a high of HK$3.18 and experienced some of the heaviest trading in its history.
The share price has enjoyed a U-shaped recovery since October 30 when Meadville fell 29.3 per cent to HK$2.15 and was suspended from trading. Yesterday's closing price was its highest since the stock was listed in 2007. For most of its trading history, the stock has been below its initial public offering price of HK$2.25.
TTM rose 5.98 per cent to US$11.88 on Nasdaq on Monday.
'The Nasdaq market has digested the Meadville deal,' said Kim Eng analyst Tam Tsz Wang. 'Investors should not expect more upside with TTM.'
The deal is subject to Meadville shareholders' approval at an extraordinary general meeting in January. The shareholders will be offered HK$3.47 a share, a 61.4 per cent premium to its share price of HK$2.15 before trading resumed yesterday, which will comprise HK$1.867 in cash and 0.1085 TTM share per Meadville share.
This is the first time shares in a United States-listed firm have been offered as consideration for a Hong Kong public merger and acquisition transaction.
'Investors had better take profit at this point. The risk is the deal may not go through, then Meadville's share price may go down to the HK$2 level. If TTM's share price drops, the consideration will drop, so it's better to sell now,' said Tam.
The deal is subject to regulatory approval in the US, and Meadville hopes to complete this deal in the first quarter next year.
TTM's shares were likely to face downward pressure, said Tam.
In the wake of the announcement of the deal, Standard & Poor's placed TTM on credit watch with negative implications, which means the agency may downgrade TTM's credit rating in future. S&P said it did not expect to downgrade TTM by more than one notch. At present, S&P's corporate credit rating of TTM is BB-minus, which means TTM is below investment grade and faces major ongoing uncertainties.
The Tang family owns 72.2 per cent of Meadville, with three family members sitting on its board. After the deal, the Tang family will own 33 per cent of TTM, thus becoming its biggest single shareholder, and Meadville chairman Tom Tang Chung-yen, a brother of Henry Tang, will sit on TTM's board.
With the Tang family owning 33 per cent of a US firm, Henry Tang was far less likely to be challenged for any potential conflict of interest, said Tam. 'With only Tom Tang on TTM's board, the Tang family will not have influential control of TTM. It's more difficult to transfer Hong Kong political interests to a US company.'