Mandatory offer on On’ally Holdings recommended despite offer price falling below current market price

• Majority of Directors disagree with offer price 

Interestingly, the Independent Advisor has recommended the shareholders On’ally Holdings PLC to accept the mandatory offer price of Rs.30.32 per share offered by its new controlling shareholder, Lanka Realty Investments PLC, which is below the current market price of Rs.40 per a share. 

The On’ally share closed at Rs.40 on Wednesday, down Rs.2.90. The net asset value per share of the company as at September 30, 2020 was Rs.23.47.

Lanka Realty Investments on December 11, 2020 announced an offer to purchase 45.7 ordinary shares constituting to 49.32 percent of On’ally Holdings for Rs.30.32 per share, after becoming the controlling shareholder of the company, following its purchase of 50.8 percent stake of the company earlier in the month.

“The offer price of Rs.30.20 is attractive as the offer price is at a premium to all-valuation prices. The shareholders should also note, based on the past trading history that the liquidity of the share is low, and this mandatory offer provides an opportunity for existing shareholders to exit. Therefore, MBSL concludes that Lanka Realty Investments’ mandatory offer price is fair and reasonable and recommends shareholders to accept this offer,” the Independent Investment Advisor Merchant Bank of Sri Lanka PLC (MBSL), appointed by the offeree, said in its report.

On’ally Holdings PLC owns and operates the Unity Plaza building in Bambalapitiya, which is considered to be a prime piece real estate in  Colombo.

However, the majority of the Board of Directors of On’ally Holdings—with one of its Directors G.T. Fazleabas dissenting— was in disagreement with the investment advice of MBSL, citing that the offer price doesn’t reflect the correct price considering the potential for future developments of the company.

Further, MBSL identified that the current market rally as a risk of accepting this offer for the investor.

“At present significant improvement witnessed in the overall performance of the CSE with the share price appreciation of companies across the board. In this context, the share price of the company may increase the offer price, which will be negatively impacted to the shareholders who accepted the offer,” 

it said.MBSL also admitted that it didn’t have access to future strategic plans of the company to consider in this assessment.

Lanka Realty Investments has announced plans to transform Unity Plaza as a top Grade-A office building, according to some media reports. 

“Upon materialisation of such plans the value of the company’s shares can be much higher than the offer price and shareholders who accepted the offer are subject to the risk of losing out on an investment gain, if there’s an appreciation of share prices,” MBSL noted.

The UDA currently remains as the second largest shareholder of the company, owning 41.6 million shares of On’ally Holdings, constituting to 44.8 percent stake. A few years ago, when Renuka Capital made a play to acquire the control of On’ally Holdings by triggering a mandatory offer, UDA decided to hold on to its shares.

Meanwhile, high-net-worth foreign investors hold over 80 percent of Lanka Realty’s shareholding, while the biggest local shareholder is the Joint Managing Director Hardy Jamaldeen, with 15 percent stake.