Sino-Thai Engineering and Construction Public Company Limited (STEC) on September 10, 2021, announced that the Board of Directors have resolved to not enter into a transaction with STPI in the acquisition of its subsidiary, STIT.
STEC stated that following the Board of Directors meeting on September 24, 2020, the Boards resolved to acquire STIT Co., Ltd., seeing the business would benefit and promote the company’s business as well as good return on investment.
However, with the COVID-19 epidemic situation that has been a severe outbreak since January 2021 and continually severe after April 2021 until the present, affects the whole country in terms of economy and society.
Moreover, the bidding of government infrastructure projects has been delayed and private construction work has also slowed down, which is expected to not recover in the near term. This will significantly affect the investment in STIT Co., Ltd.’s business.
STEC decided to appoint C.J. Morgan Company Limited as a new financial advisor, replacing Country Group Advisory, to jointly prepare a financial projection under a new assumption that a situation has changed significantly from the impact of the COVID-19 epidemic. And it turns out that when considering investments including interest, the return on equity from the investment in STIT will be reduced to 0.16% from the previous estimate of 16.53%, which is not worth the return on investment at this time, making it a significant changes from what it was proposed to the Extraordinary General Meeting of Shareholders on November 27, 2020.
The company made an attempt to negotiate for the price of purchasing STIT from STP & I Public Company Limited (STPI) and acknowledged that STPI confirmed the same price, hence the two parties did not achieve the agreement.
Therefore, the Board of Directors’ meeting considered with caution, to protect the interests of the company and shareholders, that the investment in STIT based on the previous terms and conditions is not worth the investment. Consequently, it was resolved unanimously to not enter the STIT acquisition transaction. STEC reiterates that there will be no impact to the company and shareholders from not entering the transaction.
Following the notification, a group of minor shareholders of STEC and STPI has held a press conference to express their disappointment with STEC’s resolution and to announce their intention to file a petition with the Securities and Exchange Commission (SEC) and the Stock Exchange of Thailand (SET) to probe the board and STEC executives’ wrongdoing in refusing to enter the transaction for the acquisition of STIT. They argued that there were numerous irrational concerns, including the claim of the COVID-19 epidemic fears, and the change of financial advisors; C.J. Morgan, where Mr. Chamni Janchai formerly served as the company’s owner and chairman. However, he is presently the Chairman of STEC’s Audit Committee and a director of STPI.
This brings into question the independence of C.J. Morgan as a financial advisor and how trustworthy they are. Additionally, it may involve a conflict of interest. Over 35,000 minority shareholders will be disadvantaged as a result of acquiring misleading information from this matter.
Minority shareholders expressed their concerns about the replacement of independent financial advisors. Country Group Advisory earlier suggested that acquiring STIT would produce enormous benefits and a maximum equity internal rate of return (IRR) of up to 16.53%. However, because of the impact of the COVID-19 outbreak, C.J. Morgan re-evaluated and found that the IRR would reduce to 0.16%, rendering the investment unprofitable.
Additionally, given Mr. Chamni Janchai was the chairman of C.J. Morgan prior to joining STEC’s Audit Committee and STPI’s Board of Directors, C.J. Morgan’s transparency and independence are indeed being questioned.