Event – conditional cash offer
TVB announced a conditional cash offer to repurchase up to 138m sharesat HK$30.5/share, a 14.7% premium to yesterday’s closing price. Thisrepresents 31.5% of total shares.
Young Lion, a major shareholder, will not participate in this offer. Thus,together with concert party, its stake should increase from 29.9% to~43.66% (maximum). It plans to apply for a whitewash waiver, as ittriggers a mandatory general offer.
A document will be dispatched ahead of the EGM with a detailed timetablefor shareholders.
Rationale of the deal – 1) an opportunity for investors to realize part of theirinterest in their company and 2) utilize its existing cash to enhanceshareholder value.
Deutsche Bank’s view
The company has ~HK$2.5bn net cash as of 1H15. Along with the disposal ofa property in Taiwan, it has ~HK$3.5bn net cash, which allows them tomaintain a steady dividend policy (i.e., absolute dividend of HK$2.6 per sharein 2016 or HK$1.14bn annually).
The company raised USD500m (HK$4bn) in bonds on 29 September 2016 witha rate of 3.625%. The use of the proceeds is expected to fund the expansion ofits digital new media business and other capex in order to make a strategicinvestment.
We are surprised by TVB’s action to spend HK$4.29bn in buying back shares.Investors might need more clarification on management’s use of cash, bondproceeds and dividend plans. The move might help enhance 2017 EPS by 25%(maximum), based on our NP forecast (after deducting the coupon payment).The announcement is likely to be positive for share price.
The move, which might result in a major shareholder increasing its stake,might help secure its major shareholder position. As the industry is converging,we believe management will continue to look for investment projects in orderto stay relevant in this market.