BlueStar SecuTech (ticker: BSST.L) is delisting from AIM and simultaneously proposing a tender offer for a maximum of 23.52% of it’s shares at a price of 2.5p. This offer is well below the last closing price of 4.12p.
BlueStar is a Chinese company, providing surveillance network solutions in China. In 2008 shares were still trading well above 30p. Now shareholders have two choices: either tender at 2.5p or continue holding the shares. Choosing the second option means you’re left holding shares in a Chinese company while there’s no active market for trading those shares. It is understandable that many investors do not see this last option as desirable. There’s actually a third option: selling your shares in the open market and many investors seem to be doing that now. This is what could create a good opportunity for investors to take advantage of the spread between the market price and the tender offer price.
As I’m writing this, shares are trading at 2.25p, but the share price is very volatile and have traded today as low as 1.5p. Taking advantage of the spread looks very attractive.
What makes this situation attractive is that 76.48% of the shares will not participate in the tender offer:
“The Company has received irrevocable undertakings in respect of their entire holdings from SecuLine Technologies Inc. and other persons currently beneficially owning 55,686,234 Ordinary Shares in aggregate, representing approximately 76.48 per cent. of the current issued Ordinary Shares, that they will not participate in the Tender Offer in respect of those Ordinary Shares.”
(emphasis mine)
It looks to me that there’s little risk of proration in this case. The tender has been constructed in a way that the remaining stake of 23.52% of the shares can be bought by the company. Perhaps many investors don’t realize this and believe there is a danger of proration and ending up with a bunch of untradable shares in a Chinese company. That could make them decide to sell in the open market now and that would explain the large discount to the tender price that currently exists.
There is a risk that the delisting and / or tender offer don’t happen for some reason. I have no idea how to estimate that risk. The main problem could be the financing for the offer, but the company seems to be able to finance it:
“Due to the Group’s current working capital and cash flow management problems, the Directors believe the Company is unable to offer Shareholders a price above 2.5 pence for each Ordinary Share purchased under the Tender Offer, which the Company is able to fund from its current banking facilities.”
I don’t think I’ll be able to participate in this offer, but I thought this could be a good opportunity.