Monday, 5 March 2012

PNB's offer price for SP Setia: "not fair, not reasonable"

The independent circular from AmInvestBank has been issued in relation to the Mandatory General Offer for SP Setia by PNB. Their recommendation for the normal shareholders:

"Not fair and not reasonable", it is very, very rare in Malaysia that this advice is given.

The reason is two-fold:
  1. The Board of Directors issued this statement September 2011: "The Board has met to consider the Offer and are of the view, based on external valuations of the Company by investment analysts published before receipt of the Offer, that the Shares Offer and Warrants Offer fundamentally undervalues the Company."
  2. PNB did not issue a "delisting threat", in other words it would try to keep the listing status of SP Setia
This is exactly the way it should be, shareholders have an opportunity to exit, but are not forced to accept.

Offers with "delisting threat" have a very high percentage chance of succeeding, the share price rises just below the offer price, many impatient shareholders sell at that price. Fund managers often are not allowed to hold shares in de-listed companies and also sell, and the 90% barrier is breached after which the share is delisted. Also, independent advisers almost always recommend to accept the offer, at best they will value the offer as "not fair but reasonable" since at least it offers an opportunity to exit.

My recommendation is: simply don't allow companies to issue the "delisting threat" in combination with the General Offer. It makes Bursa much more fair for minority investors.


  1. M.A. Wind,

    Since PNB has no intention to privatise, let alone delist the company, why is the share price hovering around the offer price of RM 3.95 like a ceiling? Shouldnt the shareholders go out and buy more of the company as the current price is still pretty undervalued?

  2. Hi any comment on Sime Darby planning to list its plantation, engineering and property segment? To me they seems like playing a fool with the investors! The only beneficiary party is the investment bank.

  3. First of all, although SP Setia's trackrecord is good, it is not exactly a steal at this moment at a PER of 20.

    Secondly investors might be scared that most shareholders accept the offer, at which point the company is still delisted and investors have to accept the offer or own shares in a delisted company. I don't think that is very likely, but it could happen and might dampen the upside at the moment.

    1. Do not understand why the independent adviser made a recommendation to reject the share offer but recommended warrant holders to accept the offer. No premium was given to the warrant offer price but just the intrinsic value of RM0.96 (offer price RM3.95 - warrant conversion price RM2.99)

    2. I agree with you, premium should be given due to assymetrical return (if share price below RM 2.99 then no need to pay, but if price higher then say RM 5 warrant holder still profiting).

  4. Agree, Good deals, Mediocre deals or Bad deals, Investment banks always make money!

    I am waiting for the details.