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Nera Tel offer - Independent Board's view

I received the circular from Nera Tel's independent board of directors this week.



The view from their appointed advisor was that the $0.49 offer was fair but not compelling. In this regard, it is recommending that the shareholders reject the offer. The independent directors also supported the recommendation for shareholders to reject the offer.



The key shareholder, Eltek, was selling as part of its directive to divest non core assets, hence may not be waiting out for the best value - what crap. Wouldn't they be compromising the value to their shareholders?

The offeror, Northstar Group, is a private equity fund manager based in Indonesia and backed by TPG, a US-based Private Equity firm. US Private Equity firms have been setting up base in Singapore with a view of increasing exposure to the SE Asia region. Obviously they see tons of value at $0.49. Private Equity managers will only invest if they can get an eventual overall return of at least 2x or an IRR of at least 18%-20%. Northstar does not intend to revise the offer price but it is also unlikely a bidding war will happen as Northstar has already gain 'majority control' of the Company.

As Nera Tel has no debts, there are plenty of ways to "extract" value through leveraging. I am just wondering whether they are able to do that without buying out the minority shareholders like me. Probably they will try to increase the debt at the company level and pay out dividends to shareholders if they managed to privatize the company. They will hope to create value by restructuring the company and business, re-incentivised the current/new management (as in Courts Asia or Amtek's case).   In the event that they can't privatize the company, i hope they will continue to pay out the dividends if the company continues to be cash flow positive as it also benefit them.

Let's see how it pans out in the coming days but I will not accept the offer as well as the offer is really not valuing Nera Tel at the fair value. The offer will expire on 8 Jan 2013 at 5pm.

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