Amvig Holdings Limited

This is a case of a live acquisition offer.

Amvig (‘Company’) is in the business of printing cigarette packages (98% of revenues) and manufacturing transfer paper and laser film. It generates 90% of sales within China.

Golden Vision Buyout Fund (‘Acquirer’) has acquired 47.63% of the shares from the previous largest shareholder. Under Hong Kong rules, it is obligated to make an offer for the remaining shares on the same terms.

Their offer is $2.18/share in cash - valuing the company at just over $2b.

The stock is currently trading at $2.17/share.

Shareholders have until December 9^th to accept the offer. There’s a 6c interim dividend payable to shareholders on record at December 4^th. After that, the offer will be adjusted downward to $2.12/share.

The question before existing shareholders is whether to accept the offer or ignore it. The primary consideration is whether the company is worth far more than the offer price. The secondary consideration is if there are competing bids (none).

Earnings attributable to owners were $346m, $267m, and $313m for the last three years. TTM earnings were $274m.

Ignoring the impact of Covid-19, but taking account of certain changes in tender rules by one of its large customers emphasizing price over technical factors, we could presume normal earning power of $300m/year. This equates to an acquisition multiple of about 7x earnings.

The company has bank borrowings of $1.55b, which is now technically in default due to change of ownership. The acquirers and the banks haven’t come to an agreement yet – but the acquirers have committed to injecting $1.35b in an adverse scenario.

The acquirers intend to continue the business as is, and retain existing management.

Management paid out about 50% of profits as dividends but future payouts are currently unknown.

The company’s prospects are actually favorable because of the lack of cigarette substitutes in China, and the importance of tobacco revenues for the Chinese government.

Comparable company analysis, however, reveals the offer is about double the price/earnings (3-4x) and price/book value ratios of other cigarette package printing companies.

We think 7x earnings for a heavily regulated industry possibly in long-term decline (even in China) may be fine for a control acquirer but not cheap enough for a minority shareholder – and therefore, existing shareholders may be better off selling out and moving to cheaper or higher quality stocks.

P.S. See our analysis of Brilliant Circle Holdings at: https://analyzingbargainstocks.blogspot.com/2020/12/brilliant-circle-holdings-international.html - an industry peer.