SFA Semicon to be delisted after upcoming tender offer

SFA Semicon Philippines [SSP suspended] [link] was voluntarily suspended on Thursday ahead of news that its parent company, SFA Semicon Co. (“SFA Korea”), notified SSP of its intention to conduct a tender offer of SSP’s public float at P2.22/share and to delist the company from the PSE. The suspension will be lifted this morning (Tuesday). The tender offer price is 48% higher than its current market value, and is based on the PSE’s rules that require the tender offer price to be the highest of either the fairness opinion or the 1-year volume-weighted average price of the stock. SSP did not indicate SFA Korea’s proposed timeline for the tender offer or for the stock’s eventual delisting.  SSP is one of the country’s largest semiconductor companies and exporters out of the Clark Freeport Zone. SSP makes memory components and SD flash cards.

MB bottom-line:  This one caught me by surprise in part because there was no suspicious panic buying of the stock in the days and hours before the voluntary suspension. Looking back, however, I probably should have seen the writing on the wall in mid-2022 when the management team kicked off a P130 million share buyback program, and then extended this program two more times (in August 2023 and January 2024) which led to SSP to eventually spend P222 million buying back ~120 million shares as of the end of February 2024. This pushed SSP’s public float down to 10.01%, just barely above the PSE minimum. It was also a great trick by SFA Korea to use SSP shareholder cash to reduce how much it would have to pay in the eventual tender offer. As of today, SFA Korea would only need to pay P454 million to buy the entirety of the public float. Without the buyback (and assuming the same price) it would need to pay P721 million to clear the public float. I think it would be a fun exercise to try and guess to what degree SSP’s buyback program artificially inflated SSP’s stock price through the previous year's period relevant to this tender offer. The stock price was in the P1.00 to P1.20 range before the first buyback was announced, and it could have cleared the larger public float at that price with the same amount of cash as it’s using now to clear the smaller (more expensive) float. Let’s see how the stock reacts today. I expect the stock to rise to within 5% of the P2.22/share tender offer price to represent a slight chance that the tender offer may not be successful.   

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