Friday, 1 February 2013

MISC taken private: "fair and reasonable?"

MISC announced that it has received an offer from its major shareholder, Petronas, to take MISC private, for a price of RM 5.30 per share.

The Star wrote the following, with some comments from me in red:

In the takeover notice issued to MISC, Petronas said it did not plan to maintain MISC's listing status.

Petronas said the offer was conditional on having received valid acceptances, which would result in Petronas holding 90% or more of the total MISC shares.

In other words, a privatization deal with delisting and mandatory acquisitition "threat", a rather frequent combination against which minority shareholders in Malaysia hardly stand a chance.

MISC's other substantial shareholders are the Employees Provident Fund at 9.66% and Skim Amanah Saham Bumiputra at 6.35%.

These shareholders can together block the deal, but will they? Will they fight in the trenches with the other shareholders, seek publicity, trying to get a higher price? I doubt it, although I hope I will be proven wrong.

However, the proposed buyout has surprised many analysts, as it came at a time when the shipping giant was turning around after several quarters of losses. It was also coming close on the recent C$5.2bil (RM16.16bil) takeover of Canadian-listed Progress Energy Resources Corp by Petronas.

Zulkifli Hamzah, head of research at MIDF Amanah Investment Bank, said: “We are caught by surprise by the privatisation of MISC, especially as it had gone through a kitchen-sinking exercise in late 2011 or early 2012 and would have, therefore, been in a much better financial shape.”

He added that while the petroleum tanker division was still suffering from high supply in the sector, recovery should be due in the near future.

“Nevertheless, the decision to delist MISC reflects the stance of the controlling shareholder that the market is not doing justice to the valuation of the company. 

But is that fair? The company is turning around, the market has not yet realized that, the share price is therefore historically very low, and exactly on that moment Petronas wants to buy out the minority shareholders with the infamous "delisting threat"?

Another analyst said: “I think Petronas just feels that MISC's valuation is at a rock bottom, and it can add a lot more value by restructuring the business away from the public eye.”

I definetely hope not that MISC will be delisted, value being unlocked, and then a few years down the road is relisted again for a much higher price, so that Bursa can boast again about being such a popular IPO destination. I have seen this "game" being played too often already.

He, however, thought that the offer price could be higher.

“Our sum-of-parts calculation for MISC is RM6.20, so RM5.30 is not fair'.”

MISC's bottomline has been volatile in the recent past due to the challenging shipping business. But it was turning the corner following the sale of its liner business in December 2011.

Below the historic 5-year share price of MISC. Long term shareholders who bought the stock more than  a year ago will be sitting on huge losses.

Some time ago a book was published "The Emerging Markets Century: How a New Breed of World-Class Companies Is Overtaking the World"  by Antoine van Agtmael. The whole book was about emerging markets, but although Malaysia was the darling of the emerging markets in the nineties, not even one paragraph was written about the country, it had lost its status as preferred destination in the next century. 

The only exception was in the back of the book, where the author gave a list of 25 promising companies in emerging countries, and one single Malaysian stock was mentioned: MISC. The stock picks (incl. MISC) are all listed in this blog posting

With hindsight (but then again, with hindsight we are all experts), it was not a good stock pick, people who bought the stock would be sitting on pretty substantial losses. And with the current developments, it looks like they won't have a chance to recoup their losses.


  1. i think the offer is reasonable , at decent premium over market prices. the stock has been trading around RM4 , and the offer price RM5.30 is more than RM1.00 premium / close to high twenties percent premium. Its about opportunity cost where shareholders can reinvest the proceeds from the acceptance of the offer , and may earn much higher return from holding on to the stock for another 2 years. Shipping is a challenging industry with high capex requirement , and the current outlook for tanker business is negative for the next 2 years due to oversupply and uncertain economic outlook. One got to take a view , and any better reinvestment options available for 1 or 2 years horizon, regardless of one's historical cost of investment.

  2. Thanks for your commments. I would be very interested to know how long the current shareholders are holding their shares, only people who bought the share less than 1 year ago or very, very long time ago might be sitting on a profit, others are having (substantial) losses. Few years ago there was a rights issue at RM 7, people had to exercise their right otherwise they would be dilluted, those shares are now also sold at a loss.

    I have nothing against a General Offer, but I hate those with a delisting and mandatory acquisition "threat", simply because minority shareholders in Malaysia don't stand a chance. Being forced out of your shares while the industry is picking up, that is not what longterm investing is about. At least, that is my opinion.

  3. Looks like Petronas is trying to capitalise on the recovery of MISC at the expense of the minority shareholder. To begin with, Petronas is already in control of MISC by virtue of its 62% shareholding. Why need to privatise in order to turnaround MISC? The same can be done while remaining as a listed entity. Moreover, a listed company is subject to a higher level of corporate governance and continuously under the attention of public eyes. This would ensure the turnaround plan to have a better chance of succeeding, with the exception of MAS.

  4. Janji Dapat Undi6 February 2013 at 10:25

    Anyone here betting that EPF will reject the offer, and demands a higher offer price, for the best interest of all EPF contributors?

  5. I didnt give it much chance, but it looks like there are some developments, so who knows? I definetely hope they will do so.

  6. I've been holding onto my MISC shares for about six years now. Rode the gradual decline in 2011 and even increased my holdings, seeing prospects in the longer term. You may argue why I didn't choose to cut my losses and reinvest at a lower price - I didn't, and I don't expect to be punished for that, especially when the company is showing signs of recovery.

    Having second thoughts about investing any money in Malaysia, especially when government run entities can have a field day swiping hard earned cash from unwitting minorities.

    @Anonymous 3 February 2013 17:03
    It's only been recently trading at RM4-5 for under a year, starting with the sharp drop Q2 2012. I definitely wouldn't consider that a "reasonable" price. Not from a technical nor fundamental perspective. Astroturf much, sir?

    1. I can see Ananda style here. Privatise at low valuation and a few years later, relist at a higher valuation. Will easily make a few billions capital gain. Petronas and other shareholders, especially government agencies are colluding to oppress the minority individual investors.

  7. Aku rasa ini permainan yang tidak adil. Memang kita hidup dalam negara yang tidak adil. Walaupun aku ada cuma 1 lot saham MISC sahaja dan bila ini berlaku aku akan kerugian RM3500.00. Aku orang miskin yang baru belajar melabur di KLSE dan inilah balasannya kerana kenaifan sendiri.

    1. Hello. Minta penjelasan boleh? Ada 1 lot saham. Maksudnya, 1000 unit? 1 lot sebenarnya 100 units. Kalau rugi RM3500, maksudnya harga beli adalah RM8.80? Ini adalah harga dua tahun lepas. Adakah ini masih dianggap 'baru belajar melabur'? Lagipun, kalau 'miskin' dan 'baru belajar melabur' adakah akan membeli 1000 units saham MISC pada harga RM8.80 yang memerlukan RM8,800 tanpa termasuk komisen broker?

  8. Relisting at higher price benefits Petronas. Another party that reaps handsome money is the merchant bank and CIMB always gets it. Look at prevoius delisting and relisting exercises. I think it's not difficult to guess why.

    outsmarted investor

    1. Privatise at low price will benefit Petronas and CIMB that acted for the former. Later for relisting at high valuation, again it will benefit Petronas as the selling shareholder and also CIMB as the IPO underwriter. WTF.