Shares of Hong Kong-based retail forex broker KVB Kunlun Financial Group Ltd (HKG:8077) have been slowly drifting down over the past two weeks, down 21% overall in March, with not one ‘up’ day to report since March 6. In Wednesday trading KVB was down 3.3% to close at HK$1.17 per share, its lowest level since late January.
Some quick background:
China’s CITIC Securities Company Limited (SHA:600030) finalized its purchase of 60% of KVB in late February from KVB’s former majority shareholder Li Zhi Da, paying him HK$0.65 per share (or a total of $101 million).
At that time, CITIC indicated that – pursuant to Hong Kong takeover law – it will now proceed with an offer to acquire the ‘public’ shares of KVB. That offer will be made at the same price it paid to Mr. Li Zhi Da – HK$0.65 per share.
Trading as high as HK$1.77 prior to CITIC’s formal purchase in anticipation of a higher offer from CITIC, it seems as though KVB shareholders are either tired of waiting, or are slowly coming to the realization that CITIC might not raise its offer to take out the minority shareholders and take KVB private.
KVB Kunlun share price graph past 3 months. Source: Google Finance.
Well if we’re CITIC, and if we have big plans for KVB, then we probably don’t want to have to share that upside (and the investment we’d have to make to get there) with minority shareholders. So there is certainly incentive for CITIC to pay something (more) to buy out KVB’s public shareholders.
But as long as KVB’s shares continue to drift downward, there’s no real rush to make any kind of enhanced offer. Let the price settle, and then make the shareholders an offer which they’re more likely to accept for shares which are heading down.
However waiting too long could backfire – if KVB continues to report stellar results, the shares will trade up and minority shareholders are unlikely to part with their shares unless a much better offer is made.
Stay tuned to LeapRate as we continue to bring you continued coverage of what promises to be an interesting story in the coming weeks.