Pacific Insight Electronics rejects Kaizhong “Superior” offer

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By Ted Liu

Pacific Insight Electronics Corp. (TSX: PIH) has confirmed the receipt of a written proposal from Shenzhen Kaizhong Precision Technology Co. Ltd. (SSE: 002823) offering to enter into an arrangement agreement to acquire all of the company’s shares for cash consideration of $24.35 per share, valuing Pacific Insight at $189.5 million on a fully diluted basis.

Shenzhen Kaizhong’s offering represents a 31.6% premium to the $18.50 per share offering by Methode Electronics, Inc. (NYSE: MEI) and a 131.9% premium to Pacific Insight’s share price on the Toronto Stock Exchange on July 31, 2017, the trading day immediately prior to the announcement of the Methode Transaction.

Kaizhong proposes to complete the transaction on substantially the same terms as are set out in the Methode agreement. Its offer is subject to 1) shareholder approval of Kaizhong, to which Kaizhong said having obtained the written approval of shareholders holding more than two-thirds of the issued and outstanding shares; 2) completion of filings with the municipal branches of the National Development and Reform Commission and the Ministry of Commerce of the People’s Republic of China.

Kaizhong said it will be able to satisfy the conditions precedent and complete the transaction by December 31, 2017.

On August 1, 2017, Pacific Insight Electronics announced the entering of a definitive agreement with Methode Electronics in an all-cash transaction at $18.50 per share for total consideration of approximately $144 million.

Pacific Insight Electronics has called for a Special Meeting of Shareholders on September 26, 2017. Assuming obtaining of shareholders’ approval, the Methode acquisition is expected to close on September 27, 2017.

Pacific Insight Electronics’ board of directors said, after considering materials provided by Kaizhong and receiving legal and financial advice, it concluded that Kaizhong offer is not a “Superior Proposal” for a variety of reasons, including:

  • Any transaction with Kaizhong is subject to the prior approval of Kaizhong’s shareholders. Under the agreement with Methode, the Company cannot accept a proposal from a third party that is subject to shareholder approval. The Kaizhong proposal therefore cannot be a “Superior Proposal” within the meaning of the agreement with Methode.
  • The purchase price for the transaction proposed by Kaizhong is to be funded largely by bank financing. The commitment letter obtained by Kaizhong is subject to any agreement between Kaizhong and the Company being satisfactory to Kaizhong’s lender. It is also subject to completion of financing agreements satisfactory to Kaizhong and its lender.
  • The transaction proposed by Kaizhong is subject to certain government approvals in the People’s Republic of China. The ability to obtain governmental approvals, and timing of any such approvals that can be obtained, is inherently uncertain.

“The directors of the Company and I have unanimously confirmed that we continue to support the transaction with Methode as being in the best interests of the Company and recommend that shareholders vote in favour of it at the meeting on September 26, 2017,” said Stuart D. Ross, CEO of Pacific Insight.

Ross is the only shareholder holding over 10% of Pacific Insight common shares, controlling 951,701 shares or 13.69% of the 6,949,687 issued and outstanding shares.

Pacific Insight stock traded at $22.13 as at 9:33 AM EDT September 7, 2017.

photo credit: Pacific Insight Electronics