MBM Resources offered on October 27, 2011 to buy all shares in Hirotako for RM 0.97 per share. If that is a decent offer is beyond the scope of this posting, I don't find it a very rich price, on the other hand this type of company (its business is manufacturing of car parts) is often going for a low valuation. The price offered was at a nice premium to its last transacted price. On the other hand, this was again one of those "infamous" offers with the threat of delisting and mandatory acquisition, Bursa Malaysia seems to get a reputation for this.
Apart from shares there were also warrants of Hirotako. They were only listed February 2011, have an exercise price of RM 0.92 and are maturing February 2016. Since an offer was made for the share, an offer also had to be made for the warrant. However, the offer price was an unbelievable low RM 0.05, not taking into account any of the benefits of warrants.
This is what the independent adviser (Interpacific Securities Sdn Bhd) wrote about the warrant:
But the time value is a very important component of the value of a warrant.
The most common way to value a warrant is the Black-Scholes Model:
A 60% discount to the fair value? This offer sounds tremendously unfair to warrant holders.
The effect of the offer on the share price:
The effect of the offer on the warrant price:
Rather different pictures, to say the least.
And this is the conclusion from the independent adviser (with which the Board agreed):
Fairness for Warrants offer: Not Fair.
Section 31 of the Code for the Malaysian Code for Take-Overs and Mergers says the following:
Was there an "appropriate offer"? And what about: "safeguard their interest"?
The strange aspect is that it would have been very simple to offer something that is fair. One way is to offer a decent price for the "time value" of the warrants based on the Black-Scholes model.
The share holders have accepted the offer in an EGM on December 15, 2011 and the shares and warrants have been delisted on December 29, 2011.
Is there not a duty for the Board of Directors to assure fair treatment of the warrant holders?
And why did the authorities not act to protect them?
And lastly, an offer that is clearly unfair, I think the recommendation for warrant holders should be not to accept the offer.
If every single independent report always ends with a recommendation to accept the offer (which is the case on the Bursa Malaysia), then what is the use of it? Better stop with these reports, it saves a lot of money, time and hassle, and gives the minority share holders or warrant holders some chance to fight.