Shares of small cap semiconductor firm O2Micro International (US:OIIM) gapped 30% higher on the final day of trading last week after management announced that they had entered into a definitive agreement to take the company private through a merger with FNOF Precious Honour Ltd and Rim Peak Technology Ltd.
OIIM’s stock price opened a few cents lower at $3.22 per share at Friday’s open before the announcement was released shortly and shares climbed to the $4.20 range by mid day.
The transaction implies an equity value of around $145.9 million and will see OIIM become an indirect subsidiary of Right Dynamic Investment Ltd which will be owned by the FONF consortium, the CEO and Chairman Sterling Du, CFO Perry Kuo, certain employees and rollover shareholders.
If completed, the transaction will entitle shareholders to receive approximately $5 for each OIIM share held, representing an 18% premium to the Friday closing price.
Management noted that the offer represented a 68.9% premium to the closing OIIM price on the 19th of September before the company announced receipt of its proposal from the consortium.
The merger is expected to close in the first quarter of 2023, pending a vote of shareholder approval from at least two thirds of the shareholders.
This revised offer is the second to front OIIM shareholders, following the initial offer made by the FONF consortium back in the middle of May where they were offering $5.50 per ADS. At the time shares were trading around $3 and jumped above $4 before slowly giving up gains again until this week.
The key difference in the new offer is that OIIM’s senior management have joined the consortium and a reduced offer price. The reasons for the reduced offer price included weaker performance, restrictive Chinese Covid policies, a challenging macroeconomic backdrop and volatile global equity markets.
In the days leading up to the announcement, analyst Tore Svanberg from Stifel Financial downgraded his recommendation for OIIM to ‘hold’ from ‘buy’ previously and slashed his target price from $5.50 to $3.50.
Svanberg believes the revised offer creates uncertainty for existing shareholders given the “tentative” nature of the transaction and with conflicts of interest arising from the CEO and CFO being part of the consortium.
Stifel remains wary and warns the offer price can still be revised further!
So is it worth buying shares with over 15% upside to the current share price?
The share price should see support as news around the transaction continues to surface but downside risks remain around the final offer price and the probability of success.
Despite the volatile share price throughout the pandemic, Fitnel’s ownership accumulation score tells us that OIIM has been attracting above average investment from institutions.
OIIM ranks in the top 28.5% of 30,754 screened securities with 39 institutions on the register that own 13.55 million shares on the register.
Some of these institutions include Grandeur Peak Global Advisors, DnB Asset Management, Renaissance Technologies and VIEX Capital Advisors.
This article originally appeared on Fintel
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