Saturday, 13 April 2013

EPF/Petronas, "not fair but reasonable", MBf

[1] P Gunasegaram wrote an article on KiniBiz about EPF accepting Petronas' revised offer for MISC shares under the title: "Shame on you EPF!".

I can't agree more on the article, I strongly recommend to read the full article.

The new offer from Petronas was an improvement of less than 4%, a much too low offer. Why did the EPF so hastily accept this offer that is still way below the fair valuations and below the rights issue a few years ago?

Keeping MISC listed would ensure a healthy dose of transparency, something that Petronas itself also could do with.

It looks like a typical case of "face" where both parties can claim some credit:
  • EPF claims that they are actively fighting for the shareholders (I have very strong doubts about this claim), they booked a victory since the price has increased;
  • Petronas can claim that they only raised the price by a small margin, in other words the first offer was also "pretty decent".

[2] Errol Oh wrote in The Star: "Mixed feelings over mixed advice".

"A lot of people are befuddled by the on-going streak of independent advisers (IAs) describing general offers and proposed deals as “not fair but reasonable” and yet recommending that shareholders accept the offers or vote for the deals."

I do like to add that there are two improvements compared to the old situation:
  • The majority of the delisting offers is deemed to be "not fair but reasonable", while in the past it was almost always "fair but reasonable". At least now the minority shareholder know they are (hugely) disadvantaged.
  • The quality of the independent advices has improved recently. There are still some bad examples, but these are more rare. In the past the quality was so low, that I recommended to simply do away with the independent advices, they were a waste of money and time and even worked against minority investors.
For instance, "Where Is Ze Moola" wrote about the horrific delisting of IOI Properties at RM 2.60 in 2009 while a rights issue not too long time before was done at RM 6.25. The "independent" advice from OSK Investment Bank was "fair and reasonable" and recommended the shareholders to accept the offer. This kind of advice would typically cost around RM 500,000. I don't think it was worth the paper it was written on.

"Early this week, a wire report had stated that IOI Corp was planning an initial public offering (IPO) of its property arm in the fourth quarter of 2013, speculating the total value of the listing to be in the region of RM10bil.

This would be a huge improvement in size, considering that it was only in 2009 that IOI Corp had bought back its then-listed property arm IOI Properties Bhd for a mere RM310mil in cash and shares, valuing the unit at about RM1.3bil."

In only 4 years time the value of IOI Properties would have increased by a factor 8? Do the previous minority investors of IOI Property still believe that the offer price of RM 2.60 was indeed "fair and reasonable"?

Another really bad case was the delisting and relisting of Bumi Armada, about which I have written before.

[3] Gurmeet Kaur wrote about the offer for MBF: "Happy ending for MBf minority shareholders":

"The group of minority shareholders who had, for some time now, been holding out for a higher price in the buyout of MBf Holdings Bhd have decided to throw in the towel and accept major shareholder Tan Sri Dr Ninian Mogan Lourdenadin's latest revised offer of RM1.775 per share."

I would not exactly call that a happy ending, RM 1.775 is still way below the estimated Net Assets per share between RM 2.45 and RM 3.20. Holding unlisted shares is simply not an option for most investors, and thus they were pressured to throw in the towel. Still kudos for the minority investors, they did put up a decent fight, but the odds were hugely stacked against them.

It is about time the authorities are looking into this situation: delistings at unfair (low) prices, possibly followed by relisting at inflated prices. They should make the playing field between majority and minority investors a more even one, it is long overdue.

Stating "these corporate exercises were business decisions" will simply not do.

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