Sunwah International Limited Provides Additional Information on Proposed Going Private Transaction
TORONTO, May 20, 2021 /CNW/ - Sunwah International Limited (the "Company") has provided additional information to shareholders with respect to its proposed going private transaction by way of a share consolidation and compulsory purchase (the "Transaction") that was previously announced by news releases dated February 27, 2021 and April 30, 2021 and in advance of the special meeting of shareholders (the "Meeting") to be held at 7th Floor, Tower One, Lippo Centre, 89 Queensway, Hong Kong on Friday, May 28, 2021 at 10:00 a.m. (Hong Kong time) to consider and to vote upon matters in connection with the Transaction. The additional information relate primarily to the background and process in reaching the agreement for the Transaction and is presented in question and answer format. Further details on the Transaction and on the Meeting itself are set out in the information circular (the "Circular") for the Meeting. The Circular and other related materials are available on SEDAR under the Company's profile at www.sedar.com.
After the Company's insider bid in 2015, an independent committee of directors was established in 2016 to propose a course of action to bring liquidity and fair value to shareholders. Although efforts were made, no substantive proposals or actions were tabled or pursued. What were those efforts and what actions were taken?
After the insider bid, the board of directors (the "Board") and the independent committee looked for ways to increase shareholder value and bring liquidity to the shareholders. They focused on the cash flow of the Company and considered the outstanding debts of the Company were a drain on cash flow and the independent committee was tasked to look into settling those debts. The debts were eventually settled in June 2018 with the amount settled in shares of Sunwah Kingsway Capital Holdings Limited ("Sunwah Kingsway"). As Sunwah Kingsway was a listed issuer in Hong Kong, the Company's management dealt with various Hong Kong regulatory issues, including with respect to takeover, licensing, reporting and pricing regulations. The independent committee did not retain any financial advisor and this was process was concluded in June 2018.
What strategic opportunities were explored by the Board and its committees in the period prior to receiving the expression of interest from Dr. Jonathan Koon Shum Choi to explore taking the Company private?
During the period between the conclusion of the independent committee's work on the settlement of the debt referred to above and May 18, 2020, the Company's management and the Board considered several strategic investment opportunities, one of which was successfully completed as follows: (a) in June 2018, the Company reviewed an investment opportunity in the mining sector in respect of an Asia based company with positive cash flow and significant assets. The Company entered into a non-disclosure agreement in respect of this opportunity, which ultimately did not proceed; (b) also in June 2018, the Company reviewed an investment opportunity in the medical logistics sector, in respect of an Asia based company with positive cash flow and significant assets. The Company entered into a non-disclosure agreement in respect of this opportunity, which ultimately did not proceed; (c) also in 2018, as part of the Company's efforts to expand its financial services capabilities in Asia, the Company entered into discussions to acquire or partner with a fund management company registered in Singapore and regulated by the Monetary Authority of Singapore. After a due diligence review of the financial position of the fund management company, the Company did not proceed with the transaction; (d) in September 2018, the Company looked to expand its business operations into the food and beverage industry to generate a steady revenue stream. The Sunwah Group was already in this sector in Hong Kong and the Company could leverage this expertise to increase the Company's value. The transaction was completed on November 30, 2018 with the purchase of a 51% ownership interest in HFL Limited, a restaurant operated by a leading Hong Kong restaurant brand; and (e) in January/February of 2019, the Company was in discussion to bring to Hong Kong an international, fast casual, farm-to-table restaurant chain, which had operations in Canada, the United States, Switzerland and Germany. The franchisor and the Company entered into a non-disclosure agreement. However, in June 2019, as Hong Kong experienced social unrest due to opposition to a government proposed extradition bill and together with the Covid-19 pandemic, discussions did not continue.
As the expression of interest from Dr. Choi did not include terms relating to price, structure or other deal terms, why did the Board determine to establish the Special Committee, engage valuator and start work on a formal valuation at that time?
Dr. Choi expressed his interest in exploring taking the Company private in May 2020, but prior to proposing terms relating to price, structure or other deal terms, he requested a valuation of the Company's shares as an indication of the price range. The Board expected deal terms would be forthcoming thereafter and so the Board established the Independent Committee and Special Committee and proceeded to engage a valuator to start on a valuation.
In spite of the lack of a proposal and extended periods of non-engagement by Dr. Choi, why did the Special Committee continue to work on the formal valuation and Transaction documentation and what were the considerations of the Special Committee during this time?
The Special Committee first provided a copy of the draft valuation to Dr. Choi on September 1, 2020 and did not receive an immediate response from Dr. Choi. In October 2020, there were discussions with management that Dr. Choi wished to continue exploring privatization, but it was noted that the draft valuation had a June 30, 2020 valuation date and was only valid for purposes of MI 61-101 until end of October 2020. It also had to take into account the impact of the Covid-19 pandemic on financial performance.
As background, the Company's management and operations are in Hong Kong and in July to August 2020, Hong Kong went through its third wave of the Covid-19 pandemic with the Company's offices switching to work at home and split office arrangements. By September 2020, the Company was reverting to some normal operations for a brief period until November 2020 when the fourth wave caused the Company to revert back again to pandemic work arrangements.
An updated draft valuation report was provided to Dr. Choi on November 10, 2020 with a valuation date of August 31, 2020. Although the Special Committee followed-up for a proposal, Dr. Choi was not ready to provide a proposal based on this updated draft valuation. As Dr. Choi had control of the Company, the Special Committee was limited in seeking a transaction with Dr. Choi.
In early February 2021, Dr. Choi indicated that after the Chinese lunar new year holiday and after being provided with an updated draft valuation report with a valuation date of December 31, 2020, he would consider proposing a price to take the Company private. Although the process had taken longer than expected, the Special Committee had no reason to doubt that Dr. Choi was acting in good faith and providing a valuation was expected to further discussions and elicit a price and deal terms. The Special Committee also asked legal counsel to prepare a draft privatization agreement such that they would be ready to enter into the Transaction once Dr. Choi proposed a price that was within range of the valuation.
On February 25, 2021, after the Special Committee provided the updated draft valuation with a valuation date of December 31, 2020, Dr. Choi proposed a price that was above the mid-point of the valuation range and, based on the considerations as set out in the Circular, the Special Committee recommended approval of the Transaction.
Did the Special Committee consider maintaining the status quo vis-à-vis recommending the Transaction?
The Special Committee considered all alternatives including maintaining the status quo prior to recommending the Transaction. Dr. Jonathan Koon Shum Choi and Mr. Michael Koon Ming Choi, who own or control, including through Sun Wah Capital, approximately 91.4% of the Company's outstanding common shares, had indicated that they had no intention of disposing their interests in the Company to any third party or of supporting any alternative transaction. The Special Committee also recognized that the ability of the Company to deliver value to shareholders comparable to the Transaction consideration through the on-going development of the Company's business was subject to risks. As set out in the Circular, the Special Committee considered a number of other factors before reaching their recommendation for the Transaction including: (a) the consideration of CAN$0.30 per pre-consolidated share representing a premium of approximately 43% of the last trading price on February 26, 2021, the day before the announcement of the Transaction and the cash consideration was above the mid-point of the range of the fair market value of the shares; (b) the Transaction provides minority shareholders with a meaningful liquidity event at a significant premium; (c) all of the consideration to be received by minority shareholders is cash, resulting in immediate certainty of value not impacted by market fluctuations; (d) the terms and conditions of the Transaction were negotiated at arm's length; and (e) the procedural protections in favour of the minority shareholders include, among others, dissent rights.
What are the mandates of the Special Committee and the Independent Committee?
The mandate of the Special Committee is to consider, review the terms and conditions of, and to report to the Board with respect to the Transaction and to consider whether the Transaction is in the best interests of the Company and fair to the shareholders (other than the interested shareholders). The Special Committee is authorized to, among other things, receive details of the Transaction and any alternative transaction; (b) review, evaluate and negotiate the terms and conditions of the Transaction or any alternative transaction; (c) if thought necessary by the Special Committee, canvas with relevant parties any revisions to the structure of the Transaction that the Special Committee considers to be necessary or advisable by way of response to matters of concern to the Special Committee; (d) consult with and enter into discussions with the other members of the Board and professional advisors to the Company; (e) provide a report and recommendation to the Board with respect to the Transaction; (f) if the Transaction is approved, review its implementation on behalf of the Board; and (g) in carrying out its responsibilities, the Special Committee will co-ordinate and consult with the Board, management and professional advisors of and to the Company.
The mandate of the Independent Committee is to select a valuator, supervise the preparation of the valuation and any fairness opinion required under MI 61-101, and use its best efforts to ensure that such valuation and any fairness opinion is completed and provided to the Company in a timely manner.
What were the changes in the valuation ranges among the various drafts of the valuation and what were the basis for such changes?
The valuation ranges set out in the draft comprehensive valuation reports that were discussed by the Special Committee: (a) on August 10, 2020 was $0.40 to $0.45 per share based on a June 30, 2020 valuation date; (b) on August 26, 2020 was $0.33 to $0.36 per share based on a June 30, 2020 valuation date with the lowered range due to updated information from management and valuation changes in Sunwah Kingsway and TCA; (c) on November 5, 2020 was $0.31 to $0.35 per share based on an August 31, 2020 valuation date with the lowered range reflecting the annual financial statements published in September 2020, Sunwah Kingsway's lower net asset value and cash position and its increased debt, and the lower guidelines public company multiples for Sunwah Kingsway, HFL and TCA L.P.; and (d) on February 22, 2021 was $0.27 to $0.31 per share based on a December 31, 2020 valuation date with the lowered range due to more recent interim financial results and the Sunwah Kingsway declining trading price and the HFL M&A transaction multiple also declining.
All of the DSUs are held by members of the Special Committee and all of them, other than 287,454 DSUs held by Mr. Robert Fung, are vested. What will happen to Mr. Fung's unvested DSUs upon the completion of the Transaction?
Elizabeth Law holds 182,021 DSUs, all of which are vested. Lee Lam holds 184,602 DSUs, all of which are vested. Robert Fung holds 1,657,153 DSUs, of which 1,369,699 DSUs are vested and 287,454 DSUs are unvested. Directors receive their annual base retainer in the form of DSUs unless otherwise determined by the Board and a directors may elect to receive their attendance fee and, if applicable, chair/lead director fee in cash, DSUs or a combination of cash and DSUs. DSUs vest after three years, but on ceasing to be a director, such director may receive shares in respect of DSUs in the total amount credited to such director's account. DSUs are paid out on the basis of one share for each whole DSU. The Company and Mr. Fung have agreed that the unvested DSUs held by Mr. Fung will vest on completion of the Transaction and will be paid out at the same price of CAN$0.30 per pre-consolidated share under the Transaction as with all other DSUs. This accelerated vesting of the unvested DSUs held by Mr. Fung may be considered a factor in determining his independence under MI 61-101, but the Special Committee concluded based on advice from counsel that Mr. Fung's DSU holdings and their treatment under the Transaction should not impact on his independence. Also, an independent committee is not required under MI 61-101 for purposes of the Transaction.
What was the amount paid for the Valuation?
The Company paid a total of $19,084.92 including $84.92 in disbursements to Evans & Evans, Inc., the financial advisor to the Special Committee. Evans & Evans is independent of any interested party in connection with the Transaction in accordance with MI 61-101.
Forward-Looking Statements
This news release contains forward-looking statements and information that are based on the beliefs of management and reflect the Company's current expectations. When used in this news release, the words "estimate", "project", "belief", "anticipate", "intend", "expect", "plan", "predict", "may" or "should" and the negative of these words or such variations thereon or comparable terminology are intended to identify forward-looking statements and information. The forward-looking statements and information in this news release includes information relating to the completion of the going private transaction. The forward-looking information is based on certain assumptions, which could change materially in the future, including the assumption that the Company is able to effect the Transaction and the Company is able to obtain the necessary regulatory and shareholder approvals. Such statements and information reflect the current view of the Company with respect to risks and uncertainties that may cause actual results to differ materially from those contemplated in those forward-looking statements and information. By their nature, forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements, or other future events, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others, the risk that the necessary regulatory and shareholder approvals are not obtained, the conditions to completing the transaction may not be met, or the transaction may be terminated or renegotiated on different terms. These and other risks are further described under "Risk Factors" in the Company's Annual Information Form dated September 24, 2020, which is available on SEDAR and may be accessed at www.sedar.com. When relying on the Company's forward-looking statements and information to make decisions, investors and others should carefully consider the foregoing factors and other uncertainties and potential events. The Company has assumed a certain progression, which may not be realized. It has also assumed that the material factors referred to above will not cause such forward-looking statements and information to differ materially from actual results or events. However, the list of these factors is not exhaustive and is subject to change and there can be no assurance that such assumptions will reflect the actual outcome of such items or factors.
THE FORWARD-LOOKING INFORMATION CONTAINED IN THIS NEWS RELEASE REPRESENTS THE EXPECTATIONS OF THE COMPANY AS OF THE DATE OF THIS NEWS RELEASE AND, ACCORDINGLY, IS SUBJECT TO CHANGE AFTER SUCH DATE. READERS SHOULD NOT PLACE UNDUE IMPORTANCE ON FORWARD-LOOKING INFORMATION AND SHOULD NOT RELY UPON THIS INFORMATION AS OF ANY OTHER DATE. WHILE THE COMPANY MAY ELECT TO, IT DOES NOT UNDERTAKE TO UPDATE THIS INFORMATION AT ANY PARTICULAR TIME EXCEPT AS REQUIRED IN ACCORDANCE WITH APPLICABLE SECURITIES LEGISLATION.
SOURCE Sunwah International Limited
Vincent Lai, Sunwah International Limited, +852.2283.7708, [email protected]; Kristen Humphrey, Sunwah International Limited, +1.416.888.2323, [email protected]
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