MAXNERVA TECHNOLOGY SERVICES LIMITED - :k. ;tr ;tr Fil 1} 6J
MESSIS CAPITAL LIMITED
2 November 2015
To: The Independent Board Committee
of Daiwa Associate Holdings Limited
Dear Sir/Madam,
MANDATORY UNCONDITIONAL CASH OFFER BY HUATAI FINANCIAL HOLDINGS (HONG KONG) LIMITED
FOR AND ON BEHALF OF ASIA-10 ACQUISITION FUND, L.P. TO ACQUIRE ALL THE ISSUED SHARES OF
DAIWA ASSOCIATE HOLDINGS LIMITED
(OTHER THAN THOSE SHARES ALREADY OWNED OR AGREED TO BE ACQUIRED BY ASIA-10 ACQUISITION FUND, L.P.
AND PARTIES ACTING IN CONCERT WITH IT)
INTRODUCTION
We refer to our appointment as lhe Independent Financial Adviser to advise the Independent Board Committee in respect of the Share Offer, details of which are set out in the Composite Document dated 2 November 2015, of which this letter forms part. Capitalised terms used in this letter shall have the same meanings as defined in the Composite Document unless the context otherwise requires.
On 29 April 2015, the Selling Shareholders and lhe Offeror entered into the Sale and Purchase Agreement, pursuant lo which the Selling Shareholders conditionally agreed lo sell or procure the sale of the Sale Shares, being an aggregate of 241,221,529 Shares, as (direct or indirect) beneficial owners and the Offerer conditionally agreed to acquire the Sale Shares for a consideration of approximately HK$276.0 million (equivalent to HK$1.144 per Sale Share). The Sale Shares represent approximately 55.17% of the issued share capital of the Company immediately after the Sale and Purchase Completion but before the Subscription Completion. The Supplemental Agreement to the Sale and Purchase Agreement was subsequently entered on 22 September 2015 to alter the completion date and the long stop date for the sale and purchase of the Sale Shares.
On 29 April 2015, the Company and the Subscribers also entered into the Subscription Agreements pursuant to which the Company conditionally agreed to issue, and the Subscribers conditionally agreed to subscribe, in cash, for a total of 225,000,000 new Shares at the Subscription Price of HK$1.144 per Share, representing a total consideration of approximately HK$257.4 million. Under the Subscription, the Offerer will subscribe for 144,698,889 new Shares for a consideration of approximately HK$165.5
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million, Asia-ID Holdings BVI (an associate of the Offeror) will subscribe for 43,439,139 new Shares for a consideration of approximately HK$49.7 million and Huatai Principal Investment will subscribe for 36,861,972 new Shares for a consideration of approximately HK$42.2 million. Asia-ID Holdings BVI and Huatai Principal Investment are parties acting in concert with the Offeror under the Takeovers Code. The Offeror and parties acting in concert with it will be interested in a total of 466,221,529 Shares, representing approximately 70.40% of the issued share capital of the Company as at the Latest Practicable Date.
As such, the Offeror and parties acting in concert with it are required to make an mandatory unconditional cash offer for all the issued Shares (other than those already owned or agreed to be acquired or subscribed by the Offerer and parties acting in concert with it) pursuant to Rule 26.1 of the Takeovers Code.
An Independent Boar d Committee comprising all independent non-executive Directors, namely Dr. Barry John Buttifant, Mr. Choi Yuk Fan and Dr. Liu Ngai Wing, has been formed to advise the Share Offer Shareholders in relation to the terms and conditions of the Share Offer, in particular as to whether or not the Share Offer is fair and reasonable and so to the acceptance of the Share Offer.
We are appointed as the Independent Financial Adviser to advise the Independent Board Committee as to (i) whether the Share Offer is on normal commercial terms and are fair and reasonable so far as the Share Offer Shareholders are concerned; and (ii) whether the Share Offer should be accepted. Our appointment has been approved by the Independent Board Committee.
OU R IN DEP EN DEN CE
During the last two years, there was no previous engagement, or any significant connection, financ ial or otherwise, with either the Off erer or the Company, or the controlling shareholder(s) of either of them, of a kind reasonably likely to create, or to create the perception of, a conflict of interest or reasonably likely to affect the objectivity of our advice.
Apart from normal professional fees paid or payable to us in connection with this appointment as the Independent Financial Adviser with respect to the Special Deal, the Disposal Agreement, the Subscription Agreement and the Share Offer, no arrangements exist whereby we had received or will receive any fees or benefits from the Company or any other parties that could reasonably be regarded as relevant to our independence. Accordingly, we consider that we are independent pursuant to Rule 13.84 of the Listing Rules and our appointment by the Independent Board Committee is in compliance with Rule 2 of the Takeover Code.
BASIS OF OUR OPINION AND RECOMMENDATION
In formulating our opinion to the Independent Board Committee, we have relied on the statements, information, opinions and representations contained or referred to in the Composite Document and the representations made to us by the Directors and the senior management of the Company. We have assumed that all statements. information and representations provided by the Directors and the management of the Company, for which they are solely responsible, are true and accurate at the time when they were provided and continue to be so as at the Latest Practicable Date and the Shareholders will be notified of any material changes to such statements. information, opinions and/or representations as soon as possible in accordance with Rule 9.1 of the Takeovers Code. We have also assumed that all statements of belief, opinion, expectation and intention made by the Directors in the Composite Document were reasonably made after due enquiry and careful consideration. We have no reason to suspect that any material facts or information have been withheld or to doubt the truth, accuracy and completeness of the information and facts contained in the Composite Document, or the reasonableness of the opinions expressed by the Company, its advisers, the Directors and/or the senior management, which have been provided to us.
The Directors jointly and severally accept full responsibility for the accuracy of the information contained in the Composite Document (other than information relating to the Offeror and parties acting in concert with it, the terms of the Offer and the intention of the Offeror in relation to the Group) and confirm, having made all reasonable enquiries, that to the best of their knowledge, opinions expressed in the Composite Document have been arrived at after due and careful consideration and there are no other facts not contained in the Composite Document the omission of which would make any statement contained in the Composite Document, including this letter, incorrect or misleading.
The director of the general partner of the Offeror accepts full responsibility for the accuracy of the information contained in the Composite Doc ument (other than those relating to the Group), and confirms, having made all reasonable enquiries, that to the best of his knowledge, opinions expressed in the Composite Document (other than opinions expressed by the Group) have been arrived at after due and careful consideration and there are no other facts not contained in the Composite Document, the omission of which would make any statement in the Composite Document misleading.
We consider that we have been provided with sufficient information and have taken sufficient and necessary steps on which to form a reasonable basis and an informed view tor our opinion in compliance with Rule 13.80 of the Listing Rules and Rule 2 of the Takeovers Code. We have not, however, carried out any independent verification of the information provided, nor have we conducted any independent investigation into the business and affairs of the Group. We have not considered the taxation implication on the Group or the Shareholders as a result of the Share Offer. Our opinion is necessarily based on the financial, economic, market and other conditions in effect and the information made available to us as at the Latest Practicable Date. Where information in this letter has been extracted from published or otherwise publicly available sources, the sole responsibility of us is to ensure that such information has been correctly and fairly extracted, reproduced or presented from the relevant stated sources and not be used out of context.
PRINCIPAL FACTORS AND REASONS CONSIDERED
In arriving at our opinion and recommendation to the Independent Board Committee in relation to the Share Offer, we have considered the principal factors and reasons as set out below:
Background of the Share Offer
On 29 April 2015, the Selling Shareholders and the Offerer entered into the Sale and Purchase Agreement, pursuant to which the Selling Shareholders conditionally agreed to sell or procure the sale of the Sale Shares, being an aggregate of 241,221,529 Shares, as (direct or indirect) beneficial owners and the Offerer conditionally agreed to acquire the Sale Shares for a consideration of approximately HK$276.0 million (equivalent to HK$1.144 per Sale Share). The Sale Shares represent approximately 55.17% of the issued share capital of the Company immediately after the Sale and Purchase Completion but before the Subscription Completion. The Supplemental Agreement to the Sale and Purchase Agreement was subsequently entered into on 22 September 2015 to alter the completion date and the long stop date for the sale and purchase of the Sale Shares.
On 29 April 2015, the C omp any and the Subscr iber s also enter e d into the Subscription Agreements pursuant to which the Company conditionally agreed to issue, and the Subscribers conditionally agreed to subscribe, in cash, for a total of 225,000,000 new Shar es at the Subsc ription Price of HK$1.144 per Share, representing a total consideration of approximately HK$257.4 million. Under the Subscription, the Offerer will subscribe for 144,698,889 new Shares for a consideration of approximately HK$165.5 million, Asia-10 Holdings BVI (an associate of the Offerer) will subscribe for 43,439,139 new Shares for a consideration of approximately HK$49.7 million and Huatai Principal Investment will subscribe for 36,861,972 new Shares for a consideration of approximately HK$42. 2 million. Asia-10 Holdings BVI and Huatai Principal Investment are parties acting in concert with the Offerer under the Takeovers Code. The Offerer and parties acting in concert with it will be interested in a total of 466,221,529 Shares, representing approximately 70.40% of the issued share capital of the Company as at the Latest Practicable Date.
As such, the Offerer and parties acting in concert with it are required to make a mandatory unconditional cash offer for all the issued Shares (other than those already owned or agreed to be acquired or subscribed by the Offerer and parties acting in concert with it) pursuant to Rule 26.1 of the Takeovers Code.
Background information of the Group
Principal business
The Disposal Completion took place on 29 October 2015. Following the Disposal Completion, the Remaining Group continues operating the Remaining Business, being the business segment of electronic products manufacturing of the Group (the 'Electronic Products Manufacturing Segment' ) which principally involves manufacturing and tr ading of diodes, electronic manufacturing ser vices, and manufacturing of telecom and radio frequency devices, plastic components and wire.
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