as soon as new products and suppliers come online!SINGAPORE -- One of Singapore's most successful entrepreneurs hopes to take advantage of recent share price weakness to buy out minority investors and delist his company OSIM International, which sells massage chairs and luxury tea across Asia. Ron Sim has made a bid for the 32% of the company he does not already own after a series of poor quarterly results, affected by headwinds in China, one of OSIM's main markets. Displeased at how the market is valuing his company, Sim believes delisting could give him more freedom to boost growth. Sim, who also serves as OSIM's chairman, is offering S$1.32 per share to minority stakeholders. That represents an 18.9% premium over the last traded price and a 33.5% premium over the volume weighted average price in the three months to Feb. 29. OSIM's share price shot up above the offer price on the news, moving as high as S$1.395 on March 8 as the market adopted a wait-and-see attitude to Sim's offer.
Jodie Foo, an analyst at OCBC research, described Sim's offer as reasonable. She recommended shareholders accept the offer "given the tough environment ahead and the lack of strong drivers for earnings." A second analyst, Soh Lin Sin at Phillip Capital, noted that OSIM's three biggest shareholders after Sim -- Capital Group, Morgan Stanley and Macquarie Group -- held a combined 9.68%. "If they jointly rejected the takeover offer, it is highly likely that Ron Sim's plan to delist the company could be blocked", she said. The successful delisting of OSIM would benefit Sim, according to some observers. Alfie Yeo, an analyst at DBS Group Research, explained that the move to take the company private "allows some value to be unlocked in the longer term". "As with all private companies with a few shareholders, they are always easier to restructure than a company with thousands of shareholders." It is believed that Sim had been planning to take OSIM private for some time as the company's share price fell last year.
In the second half of 2015, he spent S$17.4 million adding to his stake. "[Delisting] allows me to fast-track OSIM's growth strategically and opportunistically, to make quick corporate decisions without all the regulatory protocols and processes", he was quoted as saying in The Business Times, a local daily, the day after the announcement. OSIM International CEO Ron Sim (Courtesy of the company) Close OSIM International CEO Ron Sim (Courtesy of the company) OSIM is a household name in Singapore. From the city center to the suburbs, its outlets feature in every major shopping mall. Sim built his empire from scratch. A boy from a struggling family, who had to work as a noodle seller in his childhood to pay for school, he entered business without a university education. After an early failure in household goods trading, he started a company dealing with healthcare products in 1987, which formed the foundation for OSIM. By the time of its IPO in 2000, OSIM was already an international player with a presence in Singapore, Hong Kong, Taiwan Malaysia and China.
Its strength lay in marketing and branding. Partnering with a Japanese massage chair manufacturer, Daito Electric Machine Industry, OSIM focused on design and sales, and grew quickly, riding on the growth of the mass affluent in emerging Asian markets. The luxurious, high-quality massage chairs that OSIM offered suited the taste of the new rich in the region. OSIM added value with innovative ideas such as music-synchronized massage chairs. A recent model allows customers to download new massage programs from a smartphone, which the company says is a first. The massage chair business made Sim one of the most prominent entrepreneurs in Singapore, and saw him ranked 22nd among the country's 50 richest people by the US magazine Forbes. In 2000, OSIM launched an initial public offering (IPO) of 58 million shares at S$0.52 per share on the Singapore Exchange. The company's subsequent stock market ride has been a volatile one. After the global financial crisis, OSIM made a substantial write-off for a failed investment in the U.S and its shares touched an historic low of less than 0.2 cents, before bouncing back and soaring to a high of almost S$3 in 2014.
The shares then slid to below S$1.2, impacted by a weak performance in core markets like China. China, which was already the biggest market for OSIM by 2000 in terms of the number of outlets, gained even greater importance over time. Lately the company has not disclosed a country break down of financial performance and the number of outlets, but North Asia including China contributed 55% of revenue in 2015. The Chinese market, however, is losing its luster. The massage chair market is overcrowded, with about 100 brands competing. In the high-end segment, Japanese consumer electric giants such as Panasonic and Chinese domestic players including Shanghai Rongtai Health Technology, along with Shenzhen-listed Xiamen Comfort Science & Technology Group, are going head-to-head with OSIM. The market is so crowded that about 80% of Chinese consumers were unable to name a single massage chair brand, a survey showed. President Xi Jinping's austerity measures and a worsening economy are pushing Chinese buyers to choose cheaper alternatives.
Faced with low demand and increasing competition, OSIM closed 14 outlets in the third quarter. The company declined to say how exactly many outlets were closed in China but it is understood that this market accounted for the majority of the closures. OSIM said in a press release accompanying its 2015 financial results in late January that the year was difficult, with sluggish sales in core markets. The period was "plagued by challenges from gyrating markets and currency turmoil in the region," the company explained. Sim, however, remains optimistic about the Chinese economy, despite the market's scepticism. He said in a media briefing last year that China still has "the biggest potential." "There is a lot more upside in the consumer market. Given time to correct where they are right now, I think the great potential still comes from China, because that is where the size of the market is," he stated. Sim has been unhappy about the market's fixation on quarterly reporting, which was imposed on listed companies by the Singapore Exchange since 2003.
To him, the requirement stifles the growth of Singaporean businesses. "I'd say that quarterly reporting could undermine the long-term performance of Singapore companies," he said in a 2014 survey by local newspaper Business Times. "It takes away too much of the CEO's and CFO's time and causes them to be short-termist, focuses on the wrong things," he added. But Sim is not sitting still in his massage chair empire. Constantly searching for new opportunities, he entered the luxury tea business, investing in Singapore-based TWG Tea in 2011. Massage chair and tea look like an unusual combination, but Sim saw a growth opportunity. Despite market criticism that tea had little synergy with the rest of its business, OSIM increased its stake in TWG to 70% in 2014. Co-founded by 3 foreign entrepreneurs in 2008, TWG quickly carved out a niche in the international luxury tea market, successfully expanding its upmarket tea salons and specialized tea blends. TWG Tea has around 52 outlets across Asia including China, Hong Kong and Taiwan.