KUALA LUMPUR: Berjaya Corp Bhd’s (BCorp) takeover offer for telecommunication player REDtone International Bhd at 80 sen per share is deemed “fair and reasonable” even though it is lower than the current market price of REDtone shares, according to independent adviser to REDtone shareholders, Mercury Securities Sdn Bhd.

In a circular to shareholders yesterday, Mercury Securities said the fair value per REDtone (fundamental: 2.3; valuation: 0.5) share ranges from a low of 71 sen to 76 sen and that the offer price of 80 sen represents a premium of 5.26% to 12.68% over that.

“We note that the closing market prices of REDtone shares have been trending upwards and closer to the shares offer price in the past three years up to March 12, 2015. Since then, REDtone shares have been trending above the shares offer price until the last trading day (March 26, 2015),” said Mercury Securities.

It attributed this to the substantial accumulation of REDtone shares by BCorp founder Tan Sri Vincent Tan and companies under BCorp, the emergence of Sultan of Johor Sultan Ibrahim Ismail as a substantial shareholder, and the financial performance and growth prospects of the REDtone group.

The Time 3 contract awarded by the Malaysian Communications and Multimedia Commission (MCMC) to offer voice and data services to residents in rural areas had also boosted its share price recently, it noted.

As for the irredeemable convertible unsecured loan stock (Iculs) offer price of 32 sen per share, Mercury Securities said it is fair with respect to the share offer price of 80 sen via the conversion ratio.

“The holders of REDtone Iculs should note that as the Iculs offer price is determined based on the shares offer price of 80 sen and the conversion ratio of 10 REDtone Iculs for four REDtone shares, there will not be any difference between accepting the Iculs offer price in respect of REDtone Iculs held and accepting the shares offer price in respect of the REDtone shares issued pursuant to the conversion of the REDtone Iculs into new REDtone shares,” it noted.

Meanwhile, REDtone managing director Datuk Wei Chuan Beng, group chief executive officer Lau Bik Soon, senior executive director Datuk Ismail Osman, independent non-executive directors Datuk Mohd Zaini Hassan and Avinderjit Singh as well as non-independent non-executive director Datuk Lye Ek Sang have also agreed that the offer is fair and reasonable and have advised shareholders to accept the offer.

However, non-interested directors Matthew Thomas Vargis Matthews and Jagdish Singh Dhaliwal have recommended that shareholders reject the offer price as it is low after taking into consideration the long-term growth potential and prospects of the group as well as future projects which may be secured by REDtone.

BCorp (fundamental: 0.9; valuation: 2) had on March 27 acquired a 10.53% stake in REDtone via its wholly-owned vehicle Juara Sejati Sdn Bhd, bringing its shareholding, coupled with persons acting in concert (PACs), to 35.84%, which triggered the mandatory general offer threshold.

The PACs include Tan, Berjaya Philippines Inc, Prime Credit Leasing Sdn Bhd and Sia Git Kim.

The takeover offer for the remaining 64.16% stake that BCorp and the PACs do not own in REDtone was made after Sultan Ibrahim emerged as REDtone’s single largest shareholder recently, with a 20% stake.

Sultan Ibrahim had previously stated he will not be selling his stake.

This article first appeared in The Edge Financial Daily, on April 28, 2015.