STEng – CIMB

Nera deal is off; moving on…

We are not disappointed that Nera’s shareholders have voted against STE’s proposed acquisition of the firm. Firstly, we estimate that the deal would have only contributed 2% to STE’s earnings. Secondly, we believe there other M&A targets in Asia.

No change to our EPS or target price (blended P/E, DCF, dividend yields). Our forecasts have not assumed contributions from the acquisition. No reason was disclosed but we suspect Nera’s remaining shareholders (49.95%) are hopeful of striking a higher offer price. Maintain Outperform on STE for catalysts from stronger pick up in MRO.

What Happened

The shareholders of Nera Telecommunications have voted against STE’s proposed acquisition of the firm (all the shares).The acquisition was first announced on 10 Feb12,whenSTEsaid that its subsidiary, ST Electronics, had received an irrevocable undertaking from Nera’s controlling shareholder, Eltek ASA (50.5%),in favour of the transaction. The offer price then was S$0.45/share (S$0.39 cash and S$0.06 dividend), amounting to S$141m.

Nera is a provider of products, solutions and services ranging from satellite communications and wireless infrastructure networks to Internet protocol, optical and broadcast network infrastructure.

What We Think

We believe Nera’s remaining shareholders are hoping for a higher selling price. Nera’s share price hit a high of S$0.50 on 10 Feb just before the announcement (after trading hours).

The proposed purchase price of 10x CY11 P/E appeared fair vs. STE’s valuation (16.5x) then. We think STE is unlikely to pursue the matter further and is likely to move on to other M&A targets.

We are not extremely disappointed. Nera is “good to have”, given a clean balance sheet and potential synergies, but is not imperative to the group as we estimate only a 2% earnings contribution.

What You Should Do

Stay invested as STE is still trading close to its trough of 15xP/E in the last five years.

Comments are Closed