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.