Monday, July 19, 2010

Southern Steel Privatisation Offer

The last two postings on Southern Steel was..

  1. 7 May 2009: A Quick Look At Southern Steel And The Steel Sector
  2. 12 Nov 2009: Southern Steel Swings Back To Profit

On 13th Nov 2009: on Bursa CBRS, we can see the following report: SOUTHERN STEEL BERHAD (clickable link on the name SOUTHERN STEEL to Bursa CBRS website or via the search link on the key phrase 'Southern Steel' from 12 Nov 2009 to present day.

  • As Southern Steel’s 3Q results came in lower than expected and its 4Q performance is hinged on developments in the China market, we are expect a minor loss for FY09. Nonetheless, we are hopeful for FY10 as stimulus packages around the world serve to drive steel demand. The rich market liquidity is also prompting investors to turn their attention to high beta steel stocks, which justifies our BUY recommendation. We are tagging our 12-month target price at RM2.12.

Now on 22nd Jan 2010, OSK Research had the following comments on SSteel. (Strange this article did NOT appear from my search via Bursa CBRS! I wonder why! :P)

I am baffled. The target price os not rm 3.04. November's target price was only rm 2.12! (you can also read the same thing from the edge malaysia:
OSK Research maintains Buy on Southern Steel at RM2.39

  • It said on Friday, Jan 22 Southern Steel’s 4Q results were a pleasant surprise to the research house and the market. Apart from being impressed with good showing, it was generally bullish on the steel price and demand outlook for 1HFY10.

    "This together with the possibility of the company being a potential M&A candidate post-privatisation of Hume Industries, we maintain our BUY recommendation with a target price of RM3.04. The fair value is derived from a blended valuation of 9.0 times PER and 1.17x NTA per share on FY10 numbers," it said.

    OSK Research said it was looking at a potential M&A for Southern Steel. The company, 42%-owned by Hume Industries, is currently under-going a Voluntary
    General Offer by its major shareholder, Tan Sri Quek, to take the holding company private.

    "We suspect the privatization of Hume may give the ultimate shareholder the flexibility to exit the steel business at the right pricing. Tata Steel, which is the company’s second major shareholder, is the prime candidate as an interested party.

    "We think Southern Steel may easily carry a price tag of above RM3 per share at 8.0 times normalised earnings if a major block is offered to the market. This, together with the good results and a more promising 1H, prompts us to maintain our BUY recommendation with 12-month target price of RM3.04," it said.

I was left baffled. How, where, when and why did OSK suddenly make its decision to change it's target price from rm 2.12 to rm 3.04? (huhu... that's a 43% increase in target price hor. From Nov to Jan.. can the valuation of a company suddenly increase by a whopping 43%???? Well, apparently in OSK stock recommendation universe it can!)

Ah... but then I found it... on 20th Jan 2010, OSK had a long, long report on the steel sector. LOL! Since the report is long (29 pages), needless to say, the target prices are long too. LOL! :P

On page 27 of the report,

Ah..... there.... that was their reasoning. It was a potential M&A target.

On Friday evening, Southern Steel Berhad (“SSB” or the “Company”) Receipt of Notice of Unconditional Take-over Offer
  • The Board of Directors of the Company (“Board”) wishes to announce that the Company has today received a notice of conditional take-over offer (“Notice”) from Hong Leong Investment Bank Berhad, on behalf of Signaland Sdn Bhd (“Offeror”) on the Offeror’s obligation to acquire all the ordinary shares of RM1.00 each in SSB which are not owned by the Offeror and the persons acting in concert with the Offeror (“Offer Shares”) at a cash consideration of RM2.05 per Offer Share. Notice of Take-Over Offer.pdf


Err... to be taken private at rm 2.05 per share.

OSK ass-u-med and said out boldly that a potential M&A could make Southern Steel worth rm 3.04!!!

How now?

Back in January, Hume Industries was taken private. Yeah, I was appalled and totally disgusted at the privatisation offer. It was an insane price. Way too cheap!

And sadly, I did not see MSWG mention anything on this privatisation offer. Hope I did not miss those comments, if any.

Any lessons from all these?

Is there any advantages of being a long term shareholder when the majority shareholder can delist the company any how and at any price? (ps. if one had followed OSK comments and bought SSteel based on the M&A thingee... how now?) Seriously hor, 'suka suka' list, 'suka suka' delist. I mean, as a minority shareholder, isn't there a feeling that one is a shareholder is simply there waiting to be screwed by the major shareholder?

And what about other Hong Leong companies? Would you dare to be a long term shareholder? What if a privatisation offer happens when the share is in the doldrums? What if the privatisation offer is way below your cost of investment?