AP Land shareholders okay sale of assets, liabilities to Low Yat

Yesterday the EGM of AP Land was held. Previous blogs about the issues at hand:

http://cgmalaysia.blogspot.com/search/label/AP%20Land

The shareholders of AP Land were caught between a rock and a hard place, a situation in which they should not have been placed. They decided that approving the deal was the relatively best option for them.

Minority shareholders hardly have any chance in these kind of exercises is my experience. The rules have since been changed (the AP Land deal still fell under the old rules) but if that is enough to guarantee a level playing field, I sincerely doubt it.

http://biz.thestar.com.my/news/story.asp?file=/2011/11/16/business/9910992&sec=business

The majority of Asia Pacific Land Bhd's voting shareholders approved the disposal of assets and liabilities to Low Yat Holdings Sdn Bhd for RM302.5mil, or 45 sen a share.

The resolutions passed at the company's EGM yesterday brings a long-awaited closure to the Low family's privatisation bid, with 95.28% of the voting shareholders representing 28.86% of the company's total share base voting in favour of the sale.

Since the deal required the approval of a simple 51% majority under the Companies Act, Low Yat Holdings by virtue of its deemed 34% interest, needed only to secure the support of less than half the remaining 66% of shareholders for the deal to go through.

Minority Shareholder Watchdog Group research and monitoring division manager Ooi Beng Hooi said the EGM was pretty straightforward as issues that needed to be raised had been resolved.

“Minority shareholders might not understand the details of the proposal, and our role is to help them understand these, but the decisions are still made by the shareholders,” he said.

He said the distribution of the cash arising from the proposed disposal was expected to be received some time in March 2012.

“The offer price might be a good exit opportunity for shareholders who entered the company when the price was lower, owing to its illiquid trade and lack of dividends, but some might still be unsatisfied if they had paid more,” Ooi said.

Two weeks ago, its EGM was called off mid-way following a discrepancy pertaining to the proposed offer in the company's circular to shareholders, which was due to an inconsistency between AP Land audit committee's findings and the directors' recommendation.

The audit committee found the offer price to be a reasonable premium on the last transacted price on Jan 10 but agreed with independent adviser MIDF Amanah Investment Bank Bhd that from a financial point of view, the deal was considered “not fair” due to the large discount on net assets per share.

The buyout offer price worked out to 45 sen per AP Land share, which was an 8% premium to its closing price of 41.5 sen before the announcement was made, but at a 57% discount to the adjusted audited net assets per AP Land share as at Dec 31, 2010.

AP Land, unfair but reasonable?

My attention was drawn to the following blog post:

http://ooibenghooi.blogspot.com/2011/11/apland-egm.html

This is about the development in the Proposed Disposal of the entire business and undertakings, including all of the assets and liabilities of APLAND.

APLAND has issued Notice of Adjourned Meeting and Letter to Shareholders on 8 Nov 2011.

Earlier in the Independent Advice Circular dated 8 October 2011, one of the considerations used as basis and justification for the Disposal was Price-to-book ratio (PBR) of Comparable Companies of AP LAND

Refer to page 22 of the circular, the Independent Adviser used the closing prices of comparable companies as at the Latest Practicable Date (LPD) of 28 September 2011.

However, about 1.5 months later, the FBMKLCI and KLPROP have appreciated 8% and 13% respectively and the PBR of comparable companies have on average appreciated 10%.

This makes the offer price of RM0.45/APLAND share even more unattractive.

With the same offer price, the offer has now become even more "unfair" from financial point of view. At this point in time, would the Independent Adviser, the Company Audit Committee and the non-interested Board Members still think the offer is "reasonable"?

Yes, I agree with the writer, the offer looks not fair and not reasonable to me. I have written about this disposal before, I haven't seen any effort whatsoever from the Board of Directors to try to unlock the value of the assets AP Land owns. Minority Shareholders are caught between a rock and a hard place: either accept an offer that is clearly unfair, or continue with management that is not unlocking the assets. This is an unhealthy situation that gives the Malaysian share market a bad name. The authorities (Bursa Malaysia & Securities Commission) really should look into this, minority shareholders deserve to be treated in a better way.

News October 27, 2011

"AP Land board postpones AGM but still recommends shareholders to sanction asset sale"

http://biz.thestar.com.my/news/story.asp?file=/2011/10/27/business/9774575&sec=business

"In a filing with Bursa Malaysia, AP Land said that its board, (save for interested directors, Low Gee Tat, Low Gee Teong and Low Su Ming) was now of the opinion that the proposed disposal “is not fair but reasonable.” This is a move away from its previous view where the board had stated that the proposal was fair and reasonable.
....
However, the board still feels that the proposal is in the best interest of AP Land and its non-interested shareholders and hence shareholders should vote in favour of the resolution."

Voting in favour of an unfair proposal is in the best interest of the shareholders while there is no hurry at all? The first announcement is from January 2011, more than nine months ago, did the Board of Directors try to come with a better proposal that is more fair? Did it for instance consider holding auctions for its assets?

Olympus’ Kikukawa Quits; Complaint Goes to FBI

http://www.bloomberg.com/news/2011-10-26/olympus-chairman-kikukawa-quits-after-fees-dispute-takayama-is-president.html

"Olympus Corp. Chairman and President Tsuyoshi Kikukawa quit after allegations over acquisitions wiped out more than half the company’s market value in two weeks and as the chief executive officer he fired prepares to meet U.S. criminal investigators."

"Domestic and overseas investors have “expressed opinions that the management of such listed companies have unfairly damaged their corporate value,” the TSE said in the statement on its website. Shareholders were also concerned about “underlying problems in the quality of Japanese corporate governance,” according to the statement."

“They’re stonewalling” Merner said. “They still haven’t answered the question about why they paid huge commissions.”


More Than 80 Percent of Hedge Funds Underwater

http://www.institutionalinvestor.com/Article.aspx?ArticleID=2921936&LS=EMS581643

"The selloff in most of the global markets in the third quarter heavily impacted a large number of hedge funds.

In fact, not only did it put many funds into the red for the year, it pushed a huge number of hedge funds below their high water mark."

Are Hedge Funds not supposed to hedge (part of) the risk? Current conditions (with lots of volatility) should have been good for some funds.

Ray Dalio's radical truth

http://www.institutionalinvestor.com/Popups/PrintArticle.aspx?ArticleID=2775995

 

 

EGM of AP Land is adjourned

(Amended version, I received very interesting feedback, changes in red)

Yesterday, October 25, 2011 was the EGM of Asia Pacific Land Bhd. (AP Land) to vote on whether to sell the group's assets and liabilities to Low Yat Holdings (M) Sdn Bhd (LYH) for 45 cent per share or RM 305 million. LYH owns 34% of AP Land and thus will abstain from voting.

Interestingly, the EGM was adjourned to November 8, 2011. This might indicate that things did not go as well as the major shareholders of AP Land had hoped for.

It turned out that an important error was made, in the circular it stated:

But in reality they found the proposal not fair. A big differcence since this is a huge red flag, it seldom happens that the non-related directors dare to give this opinion. So the good thing is that:

• The non-related Directors dared to speak out
• The error was admitted and corrected in a statement to Bursa Malaysia
• The error was deemed to be important enough to adjourn the EGM to November, which seems indeed the right thing to do, since proxy voters might change their mind, knowing about this rather unusual warning

I still find it strange, if the non-related Directors find it unfair then they should try to come with a better, more fair solution. At least they could come with some alternatives.

Four MSWG (Minority Shareholder Watchdog Group) representatives took turns to "grill" the Board, a good development which is completely normal and accepted in Western countries (if the directors can't stand the heat, they should get out off the kitchen).

For the Chinese readers:
http://www2.orientaldaily.com.my/read//20Lu03zS16b21mnV1F8q06qz2LhX62Q0

MSWG (Minority Shareholder Watchdog Group) wrote about the deal:

• in The Star: "Be fair to Minority Shareholders" http://biz.thestar.com.my/news/story.asp?file=/2011/10/25/business/9762404&sec=business
• on their own website: http://www.mswg.org.my/web/dialogues.php?txtEventYear=2011&display=MTIzNDU3OTk=

"Minority investors, who are the same men and women who believed the story of the major shareholders. Thus it is only right that major owners do right when the time comes to part. Our advice to minority shareholders of AP Land is vote wisely. With your small but influential ownership (10 lots and less) you already make up 90% of the total number of shareholders. Most of the 66% of shareholders eligible to vote on the proposed disposal are minority retail shareholders."

In The Edge Malaysia of October 24, 2011 Jennifer Jacobs wrote "D-Day for AP Land", one part of the article:

"But a minority shareholder, who is not happy with the offer, points out that AP Land has huge potential that can be unlocked if the privatisation does not go through. AP Land is poised for gigantic growth with massive property development in the pipeline coupled with strategic business in overseas resort development, tertiary education in Malaysia and China, and oil palm plantations in Indonesia's East Kalimantan. This should translate into future dividends and capital gains for shareholders if AP Land is not privatised, he says. With such great prospects for exponential growth, it is only pertinent to ask why the board of AP Land is willing to sell out to the major shareholders and that too, so cheaply. The biggest losers in this deal are the helpless minority shareholders like us, he adds."

I agree, I have seen too often that it takes time for a company to position itself for future growth, and that when the time is right it sells its assets too cheap. In this case, the price offered is at a huge discount of 57% to the adjusted audited net asset value. That doesn't sound very fair.

The other side of the coin are the hugely overpriced Related Party Transactions where a company buys assets from its major shareholders at inflated prices, many examples have been given on this blog.

For these practices to end, Malaysia needs:

• Directors, who don't toe the line, who dare to speak up
• Advisers, who write unbiased, high quality reports regarding the deals on the table
• Institutions (Securities Commission, Bursa Malaysia and SSM) who take decisions without fear or favor, and who continuously amend the rules for a more level playing field
• Razor sharp journalists, who bring up these issues in the right context, who are not afraid to write critical articles about the captains of industry, who have been protected for much too long time
• Minority shareholders, who actively fight for their rights and vote accordingly

Regarding the Directors, I don't see any progress at all, but for the other items I do see some improvements. In this AP Land case, I obviously was too harsh regarding the non-related directors, so there might be hope as well on this front.

For AP Land, I really hope that the minority shareholders will put up a fight, that the deal will not go through, forcing the major shareholders either to increase their bid to a more reasonable price, or to start unlocking the value in the company. One simple way would be to sell certain assets (like the Rawang land or the plantations) in a public auction and to return the proceeds to all shareholders. I stick to this opinion. Some shareholders might have been with the company for ten years, they only received one single dividend, they clearly deserve a better deal than the one on the table.