Adam Investments looking for more acquisitions in growth sectors
Monday, 9 December 2013 00:16
Chairman Ali Asger Shabbir Gulamhusein says no forced sale in PCHH stake but move was part of strategic shedding
The newest name in corporate takeovers, Adam Investments Ltd., is looking for further acquisitions in PCH Group and outside.
“At present we are studying further acquisitions in the PC House Group and well as outside in key growth economic sectors,” Adam Investments Ltd., Chairman Ali Asger Shabbir Gulamhusein told the Daily FT.
Last week Adam Investments Ltd. (AINV) bought a 29.7% stake (16.35 million shares) in Orient Garments Plc, the PC House Group subsidiary, for Rs. 131 million paying Rs. 8 per share.
With a 10% stake previously, it triggered the SEC’s Takeovers and Mergers Code. A mandatory offer to acquire 60% stake or 33 million shares at Rs. 8 each in an exposure worth Rs. 264 million was announced last week. OGL share hit an intra-week high of Rs. 8.30 before closing at Rs. 8, up by 30 cents from a week earlier. Its 52-week highest price was Rs. 14.50.
It was the first SEC-mandatory offer-triggering acquisition of a listed entity by AINV. Previously it acquired a strategic stake in the listed Ceylon and Foreign Trades Plc. The company also owns a 10% stake in PCH Holdings and is the largest single shareholder.
Ali owns a 97.8% stake in Adam Investments Ltd., which has diversified interests.
In response to the Daily FT article last week, Ali clarified that there was no forced sale of AINV shares in PCHH held in the margin account of Pan Asia Bank. “We wanted to reduce our exposure to PCHH and it was a planned shedding as we were focusing on Orient Garments last week,” Ali added.
He said that after extensive research into listed and private companies for acquisition, the Board of AINV concluded that PCH Holdings Plc was an ideal investment choice for AINV. “Its (PCHH) diversified businesses of apparel exports, pharmaceutical distribution and activated carbon exports suited our requirement of expansion and diversification,” Ali said.
After conducting sufficient due diligence, AINV acquired 22% of PCHH with a plan to accumulate further stakes in the company.
“However, subsequent to the purchase, we ran into two issues. Firstly, we were unable to find further blocks of shares for sale that would permit us to reach our target. Secondly, the price of PCHH had increased by 100% subsequent to our acquisition, which meant that our valuation justification for the purchase had now changed,” explained Ali.
Accordingly AINV quickly reinvented it strategy, Ali said, adding that the company decided to focus only on Orient Garments PLC as sufficient quantities were available for purchase and provided a more attractive valuation based on its net assets and market price.
As at 31 March, OGL’s net assets value per share stood at approximately Rs. 14 whereas the market price was approximately 5.50 per share.
“With this strategy change adopted, AINV quickly purchased up to approximately 40% of OGL over a period of three months, accumulating enough to become the single largest shareholder of the company and triggering the mandatory offer,” Ali said.
Accordingly, during the same period AINV started to dispose of its shares in PCHH, realising its near 100% gain, he added.
Finco was the second largest single shareholder of OGL after PCHH, with a stake of approximately 16%
“Acquiring this stake was critical to our strategy; however FINCO was not favourable to disposing this on its own as they wanted to sell off their stake in PCHH. Finally a deal was struck where we agreed to acquire their 10% stake of PCHH at Rs. 2 per share along with their 16% stake at Rs. 8 per share,” Ali recalled.
High net worth investor Dr. T. Senthilverl as of end September held a 14% stake in Orient Garments and is likely to support AINV. Both Orient Garments and PCHH made losses in the first half of FY14.
AINV was incorporated in 2011 by Chairman Deshabandu Dr. Ali Asger Shabbir Gulamhusein, to focus on key growth industries that play a pivotal role in the country’s economy. The company has adopted an expansion by acquisition strategy which saw it making investments in diversified business such as Adam Apparels Ltd., Ceylon & Foreign Trades PLC, Adam Metals Ltd., Network Communications Ltd. and recently PCH Holdings PLC & Orient Garments PLC.
“These acquisitions have positioned AINV in some of our country’s key growth business sectors,” Ali said.