Minorities' right to expect full value (3)

Michael Dee (former regional CEO of Morgan Stanley and senior managing director of Temasek Holdings) wrote another excellent article in The Business Times (Singapore):

"Offer for CMA is still undervalued"

"Minorities need to speak up for their rights"

The first few paragraphs can be found here, I will give some snippets regarding the whole article.


"Capitaland (CL) has revised upward its offer for CapitaMalls Asia (CMA) to S$2.35 in the hope that this will allow CL to acquire 90 per cent and delist CMA. Game over, right? Well not quite yet. CMA minority investors were smart enough to see through the fact that the original price was too low, leaving CL in an untenable situation of having only 2.6 per cent acceptances. But the revised offer is also questionable.

It is my hope this misguided situation and others ongoing will serve as a wake-up call for regulators (Monetary Authority of Singapore, Singapore Exchange, Securities Industry Council) and third-party groups (Securities Investors Association (Singapore), Singapore Institute of Directors) over governance lapses and loopholes which disadvantage minority investors, thus leading to significant reforms in the protection of minority investors. In the meantime, investors are taking matters into their own hands."


"Second is the broader issue of the independence of independent directors, which is essential to the protection of minority shareholders. MAS "guidelines" (not proper rules) do not consider directors on the CMA board to be independent if they also sit on the CL board. However, these are just guidelines and a company can explain its deviation if not in compliance, and CMA is not in compliance. The guidelines further stipulate that if the chairman of CMA is not independent then at least 50 per cent of the board should be independent. As the chairman of CL is also the chairman of CMA, he is correctly not listed as independent. Yet two of the six independent directors of CMA also sit on the board of the CL board and yet are still classified independent. In my opinion this is not right.

Minority shareholders should never be put in a situation where there are such obvious conflicts of interest in particular when even the perception of conflicts is so easily avoided. None of this is to say that anyone has acted improperly but rather point out that in situations of majority/minority shareholding, there should be firm regulations and rules that expressly prohibit such conflicts, and guidelines which have no meaningful enforcement or oversight should be eliminated.

Given the relatively disadvantageous position of minority shareholders, they have the right to expect that independent directors have no conflicts whatsoever. In particular, in the event of an offer from the majority shareholder, the Independent Board Committee (IBC) simply should have no issues that may be perceived as impairing its ability to act as an advocate for minority shareholders. That SIAS (of which I am a member) has vigorously defended these interlocking relationships and conflicts, without discussing its own conflict of having CL as a major corporate sponsor, is also unfortunate."


"I conclude by saying to minority investors that the decision to sell or hold CMA or any of the other minority offers is yours and yours alone. You have rights and you must speak up for them or they will be eroded or abdicated. CMA is a great company with a bright future and as China moves to stimulate domestic demand, quality malls in good locations in China will command a good premium. Online retailing is unlikely to displace quality shopping locations and experiences. I would not be surprised if a third-party investor would pay more for the CMA portfolio than the offer currently on the table. Remember, the very reason CapitaLand wants your CapitalMalls Asia shares is the very reason you should also."


For those who are interested in shareholders activism, there is a great series of lectures to be found here, from the Rock Centre for Corporate Governance, Stanford University. Interesting is the historic perspective and lots of specific cases (all in US).