Competition for Pachin acquisition sparks controversy over fair value of its stock

Daily News Egypt
6 Min Read

The competition for the acquisition of the Paints and Chemical Industries Company – Pachin began to raise controversy in the money market about the fair value of the company’s share. Despite the importance of the company in the Egyptian market and its high market share in the paints sector, it has a strong land portfolio which may affect its stock price.

National Paints is competing against Eagle Chemicals which increased its offer to about EGP 39 currently, while the offer price submitted by National Paints reached EGP 39.80 after it raised it during the past week. 

Sources close to the deal told Daily News Egypt that the companies are bidding on the price of the land, not the company’s stocks, explaining that the expected fair value should be lower than the current offers.

The sources added that Eagle Chemicals is studying raising the purchase offer price by 20 piasters, bringing the share price to about EGP 40, while Compass Capital is studying the appropriate price to submit a competing purchase offer for the two companies.

The sources confirmed that the main shareholder of the Holding Company for Chemical Industries, which owns about 55% of the company, is waiting for a new offer from Compass Capital.

The companies made offers to acquire 100% of the 24 million shares, with a minimum implementation of 75% of the company’s shares. National Dyes Industries raised the advance purchase price to EGP 39.8 per share, according to the latest amendment, and Eagle Chemicals amended the purchase offer to EGP 39 per share.

Daily News Egypt monitored the opinions of some research centres to find out the fair value of the share and whether the bid was on the company or the land.

Amr El Alfy, head of the research sector at Prime Securities, said that the reason for the increase in the value of Pachin’s share is that the company owns a large stock of land, which is reflected in the evaluation of the share price, in addition to the fact that the evaluation of the price in dollars is very attractive.

Mostafa Shafie, head of the research department at Arabeya Online, explained that the fair value of the stock has gone out into a race between the two companies, and the stock’s high value is due to the depreciation of the currency and is not based on the value of the company’s assets or the results of its operations.

Shafie added that looking at the company’s business results in the past years, we will find that the financial performance is fairly good, but it is not the main reason behind the intense competition between companies for acquisition. It is likely that the value of Pachin’s share is less than the offered value, and the fair value of the share is estimated in the range of EGP 36.

The company turned profitable during the first half of the fiscal year 2022/2023, with a net profit of EGP 19.5m, compared to a net loss of EGP 12.8m during the same period of the last fiscal year.

The company’s sales during the six months ending last December amounted to EGP 491m, compared to EGP 428.4m  in net sales during the comparative period of the previous fiscal year, achieving a growth rate of 14.6%.

In a related context, Mohamed Abdel-Hakim, head of the research department at Ostool Securities Brokerage Company, believes that the fair value of the share is greater than the offered purchase price, but it is normal for the investor who bids to get a discount from the value of the share, as some factors affect its value, the most important of which are political risks and the risk of currency change, which in turn affected by 100% the increase in the value of the share, and market and competition risks

He emphasized that the evaluation method that is compatible with the company is the method of future cash flows and the method of net assets.

He added that the reason behind the company’s shareholders not responding to the competing offers is that the share price in the market is higher than the price in the bid offers.

The company’s stock closed higher at the end of last Thursday’s trading, reaching a higher price level than the purchase offers, at EGP 40.65 per share.

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