Ramunia's share price is likely to trade lower tomorrow

Ramunia's share price has rallied strongly in the past few days, from its low of about RM0.40 to a recent high of RM0.735. It closed at RM0.64 on May 4 and was suspended on May 5. Thereafter, it announced that it has received an offer letter from Sime Darby Engineering Sdn Bhd (“SDE”), an indirect wholly-owned subsidiary of Sime Darby Berhad to acquire the business and undertaking (including the assets and liabilities, whether in whole or in part, to be determined following a due diligence inquiry) of Ramunia and its subsidiaries for a total provisional purchase consideration of RM232.0 million, subject to adjustment under the terms of the Offer. For more, go here.


Chart: Ramunia's daily chart as at 5/5/2009 (Source: Quickcharts)

Ramunia's suspension will be lifted tomorrow. How much will the share, the ICPS & the warrant be trading at tomorrow? I will try to value them on the following basis:
1. The sale consideration is RM232 milllion, without further adjustment to the value of the SDE shares issued as part payment; and
2. The sale consideration is RM232 milllion is then shared out between the remaining stakeholders, i.e. ordinary shares of 562.191 million; ICPS of 100.648 million & 307.333 million warrants. [The terms of conversion of the ICPS is 1:1 in December this year while the warrant's exercise price is RM0.51.]

Essentially, we have resolved the unknown in this formula:

[Value of Share] + [Value of ICPS] + [Value of Warrant] = RM232 million

(Note: In the working below, value of share is denoted as 'a')

If we fixed the value of each ICPS as equivalent to 98% of the value of each share, then we can calculate the value of each item by the following 3 different method of valuing the warrant:

1) Warrant valued at RM0.05 each

[Value of Share] + [Value of ICPS] + [Value of Warrant] = RM232 million
[562.191 x a] + [100.648 x 0.98 x a] + [307.333 x 0.05] = 232
562.191a + 98.635a + 15.367 = 232
660.826a = 216.633
a = 0.328

In this method, Ramunia is worth RM0.328, the ICPS RM0.321 & warrant RM0.05.

2) Warrant valued at 10% of share value

[Value of Share] + [Value of ICPS] + [Value of Warrant] = RM232 million
[562.191 x a] + [100.648 x 0.98 x a] + [307.333 x 0.1 x a] = 232
562.191a + 98.635a + 30.733a = 232
691.559a = 232
a = 0.335

In this method, Ramunia is worth RM0.335, the ICPS RM0.328 & warrant RM0.034.

3) Warrant valued at share value less exercise price of RM0.51

[Value of Share] + [Value of ICPS] + [Value of Warrant] = RM232 million
[562.191 x a] + [100.648 x 0.98 x a] + [307.333 x (a - 0.51)] = 232
562.191a + 98.635a + 307.333a - 156.740 = 232
968.159a = 388.740
a = 0.402

In this method, Ramunia is worth RM0.402, the ICPS RM0.394 & warrant is worth negative RM0.108. Based on the negative value assigned to the warrant, this method is unacceptable & unlikely to be used.

In conclusion, we can rough say that the value of Ramunia share & its ICPS would likely be about RM0.32-0.34, while the warrant is worth about RM0.035-0.05. Ramunia may spin about the great potential of its stake in SDE but the essence of the deal is plain for all to see- that's the management of Ramunia has failed to realize the great potential of its assets & businesses for the past few years, where everyone in the same sector was enjoying a gala time.