Portek International (KimEng)

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Background: Portek is a turnkey provider of equipment and services to ports, especially refurbished cranes. It also operates a small chain of ports globally. Founded in 1988 by Mr Larry Lam, the company listed on the Mainboard of the Singapore Exchange in 2002.

Recent development: On 1 June 2011, Manila-based port operator, International Container Terminal Services Inc (ICTSI), made an unsolicited voluntary conditional offer to acquire Portek at $1.20 per share, valuing the company at $182m. On 8 June, however, Portek said it had already been in talks with another potential party prior to this, thus raising the prospect of a bidding war.

Key ratios…

12-month trailing PER: 14x

Price-to-book: 2.9x

Dividend per share / yield: S 2.57 cents / 2%

Net cash position: $14.8m

Share price S$1.30

Issued shares (m) 152.5

Market cap (S$m) 198.25

Free float (%) 30

Recent fundraising activities Nil

Financial YE 30 June

Major shareholders Larry Lam – 42%

YTD change 175%

52-wk price range S$0.40-1.335

Our view:

A twist to the tale After the ICTSI offer, an arbitration court in Paris ruled in favour of the termination of a profit-sharing arrangement between Portek and a local partner in Gabon. This should result in higher profit recognition of at least $3.4m pa from FY Jun11, against FY Jun10’s net profit of $12.6m. Taking this into account would value ICTSI’s offer at just 11x historical PER, and CEO Larry Lam might have hoped to get a sweeter deal.

White knight to the rescue. An offer from Mitsui & Co was announced this morning, at $1.40 per share. This is likely to be a friendlier bid than ICTSI, since Portek’s management had been engaged prior to the bid. It has also received irrevocable undertakings from parties (CEO Larry Lam and management team) which hold approximately 50% of the total shareholding.

ICTSI’s first offer unsuccessful. The $1.20-per-share offer, which had a deadline of 20 June, will now be unsuccessful with ICTSI left holding about 17% of Portek shares which it bought from the open market.

Part 3 to the saga? We do see synergies between ICTSI and Portek’s business and believe the former would still be interested in a price higher than Mitsui’s, given that it trades at more than 20x earnings itself. However, minority shareholders may want to cash out immediately, since any further battle for control could turn into a deadlock, with Mitsui already effectively controlling more than 50% of shares.