Under current terms, offer is contrary to best interests of M-Flex, says firm
(SINGAPORE) The Singapore Securities Industry Council (SIC) has rejected Nasdaq-listed Multi-Fineline Electronics' (M-Flex) appeal to withdraw its takeover bid for sister company MFS Technology.
The US$500 million acquisition, first proposed in March 2006, would have created the world's second largest maker of flexible printed circuit boards.
Singapore mainboard-listed WBL Corp owns 55.8 per cent of M-Flex and 55.7 per cent of MFS, which is also listed on the SGX mainboard.
M-Flex and MFS both provide flexible printed circuit board solutions to the electronics industry.
On Aug 22, however, M-Flex tried to withdraw its voluntary offer of stock or cash of up to $1.20 per MFS share, after the latter announced that net profits fell to $1 million for the three months ended June 30, 2006 from $6.5 million a year ago. MFS' share price, which had reached a pre-offer high of $1.30, last closed at 80 cents.
'The acquisition no longer makes financial sense under the existing price and terms,' Phil Harding, chief executive officer of M-Flex, had said in a statement.
Barely a week later, the SIC - whose prior permission is required to withdraw the offer - denied M-Flex's application to do so. In October, M-Flex appealed against the decision.
But the SIC has once again denied the appeal, M-Flex announced on Saturday, though a special committee to the group's board of directors has 'determined that under the current terms the Offer is contrary to the best interests of M-Flex and its unaffiliated stockholders' and 'strongly recommends that M-Flex's stockholders vote against the Offer'.
WBL has already given an irrevocable commitment to tender its entire MFS stake for M-Flex stock.
But M-Flex has filed a lawsuit in a Delaware court seeking to direct WBL to vote against the takeover, on the basis that the deal would be 'breaching its fiduciary duties and obligations to M-Flex's minority stockholders'. It has also sued hedge funds with an 18.4 per cent stake in M-Flex to preclude them from voting for the deal, alleging that the funds did not disclose they also own over 32 million MFS shares.
The deal would result in a 'transfer of value from M-Flex to MFS, and from MFS to the Stark hedge funds', while harming M-Flex shareholders, the company said.
The legal manoeuvres could yet scuttle the transaction.
There are certain preconditions that could relieve M-Flex from its obligations under Singapore law, such as if the US Securities and Exchange Commission fails to declare the offer's registration statement effective by Dec 31, 2006, it said on Saturday.
The SIC noted that M-Flex's lawsuits against shareholders could delay the fulfilment of preconditions by Dec 31 and ruled that M-Flex should extend the deadline to March 31, 2007, it said.
'The special committee is currently considering its response to the SIC and whether to agree to extend the deadline past Dec 31, 2006,' said M-Flex.
