ST Electronics' Nera acquisition not a done deal: DBS

A recent share price rally may hike up the S$141 million offer price or invite a rival bid.

ST Electronics, a wholly owned subsidiary of ST Engineering, has proposed to acquire Nera Telecom with the majority shareholder Eltek ASA giving its approval for the transaction.

But DBS notes of a possible change in the deal terms, or even the appearance of a competing offer which could complicate the acquisition.

Here's more from DBS:

Acquiring Nera Tel. ST Engineering’s wholly owned subsidiary ST Electronics is proposing to acquire all the shares of SGX-listed telecom and satellite communications solution provider, Nera Telecommunications (Nera), by way of a scheme of arrangement, subject to regulatory and shareholder approvals. The consideration for each Nera share is S$0.45, comprising S$0.39 in cash from ST Electronics and S$0.06 in dividends paid by Nera to its shareholders. Eltek ASA, which owns 50.05% of Nera, has given an irrevocable undertaking to vote in favour of the transaction. But given that Nera’s share price has climbed to S$0.50 over the last week in anticipation of a takeover, we do not rule out an
increase in the offer price or a competing offer at this stage.

Complementary business. Nera’s info-com technology business will complement ST Electronics’ existing offerings in terrestrial and wireless broadband networks. STE will retain the current management team of Nera and review the business over the next 12 to 18 months to extract maximum synergies from the acquisition. Retention bonuses will be paid to key personnel.

ROE accretive deal. The cash consideration of S$141m implies a PE ratio of about 10.4x Nera’s FY11 earnings, and the deal should be value accretive to STE, given that it trades at more than 16x PE. While accretion to revenue and earnings is not very significant (about 2.5% without assuming any synergies), the deal shows positive intent from STE to grow its business and deploy its surplus cash reserves to generate higher ROEs. We revise up our FY12/13F EPS estimate by 1.9/2.6% and our TP is likewise raised to S$3.12. However, organic growth in STE’s other businesses is expected to be weak in the near term, owing to its high exposure to US/ European economies. Hence, we maintain our HOLD call on the stock, largely for its dividend yield of over 5%.

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