Thursday, September 02, 2010

Global Sources: Closing the kimono?

It is just some idle speculation on our part, but we are wondering if Global Sources is mulling privatising the company – perhaps in the long-term. Global Sources has completed two tender offers in the past 20 months. The most recent one in July resulted in the company buying back some 11 million shares at US$9.00. In November 2008, the company purchased 6.25 million shares from investors at US$8.00 per share. That is a purchase of 17.3 million shares at a cost of US$150 million.

Depending on the source, the figures vary regarding the number of GSOL shares held by insiders and by institutions, but it seems that the NASDAQ-listed company has 44.65 million shares outstanding. Of those, 65.01% are held by insiders and another 32.6% are held by institutions. That leaves 2.39% as free float which is typically defined as the shares not held by insiders and large (usually institutional) shareholders. Depending on the source, the free float figure range from 2+% to about 7.5%. So that translates into a free float of anywhere from 1.1 million shares to about 3.4 million shares.

Companies pursue buybacks and tender offers for a variety of reasons and it does not necessarily indicate a path to privatising, but Global Sources really hasn’t benefited much from its listing and it takes a considerable amount of time and resources to remain a NASDAQ-listed company.

Ten years ago, Global Sources listed on NASDAQ through a reverse listing – raising no capital in the process. The company generally has no need to use the listing to raise capital, it has no long-term debt, trades at a lower valuation compared to its peers and has not needed to use the shares for any significant M&A activity.

As a result, it seems a fair question to ask why the company needs to be listed at all. If Merle Hinrichs ever decided to sell the company (improbable at best) he might do better to close the kimono.

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