Thursday, 19 April 2012

Offer for Esso: not fair and not reasonable

Today the independent advice of Kenanga Investment Bank regarding the mandatory take-over offer of Esso (RM 3.59 per share) was published on the website from Bursa Malaysia.

The advice was rather remarkable: "not fair and not reasonable" and recommend the shareholders to reject the offer. Remarkable since this advice is very rarely given in Malaysia.

The offer does indeed look rather stingy, PE of only 6.3, 1.1 times book value, net dividend yield of 3.8% and at a discount to its recent traded price. Those multiples do not look good compared to other companies in the same industry, either in Malaysia (Shell) or in neighboring countries.

Esso is regarded one of the better companies on Bursa Malaysia, although its earnings can be quite volatile, it has sometimes even booked losses in the past.

Are we going to see more similar advices on Bursa Malaysia? Is the quality of independent advices improving? One swallow doesn't make a summer, but I definitely am hoping for a positive trend.


  1. Hi M.A.,

    I am not that familiar with the legal side of takeover offers and etc, so, apologies in advance if my questions sounds uneducated. But, would it be possible that the "not fair and not reasonable" advice is being dished out because Petron do not want to fork out for the remaining shares that they did not own in the company as they have gain control? So, in this case, the independent adviser advice is actually in the interest of Petron as well?

    Granted, the valuation to takeover Esso may be cheap and it appears to be in the interest of Petron to takeover the shares, but, it seems that San Miguel as a group have a lot of things going for them in the region and may not want to waste the funding for buying out the remaining shares? Plus, they could privatize it next time and as they have control, they can manipulate the accounting to make the company financials look worse - i.e. write offs and etc so that they can acquire it later at a lower price?

    Just an uneducated and dark guess of things and trying to play devil's advocate. I am inherently skeptical of investment banks haha..especially since San Miguel is such a big corp which means there are potentially more future businesses. No point pissing them off.

    BTW, congrats on the number of views, the last time I commented here, you are celebrating your 5000 views or something. Keep it up!


  2. Thanks for your comments. Yes, I am having about 10,000 views per month, pretty decent number.

    Correct, it is possible that management actually doesnt want minority investors to accept the offer, but I got the impression (perhaps wrongly) that it was not the case here. Here the valuation is pretty low, and then it makes sense if they would like the minority's to accept the offer. Also, please note the "delisting threat", they would not have done that if they wanted minority shareholders to stay on.

    Yes, I have opened the door to the possibility that (finally, after 10 years or so) independent reports in Malaysia might change for the better, something that was long overdue.