Privatisation Issues

The issue of privatisation and the subsequent delisting of a listed subsidiary.

Generally there are two ways companies can be delisted from a stock exchange in.

The first case is the enforced, compulsary delisting of a company, in which the stock exchange forces the delisting of the stock because the listed company has failed to comply with the stock exchange listed requirements. And these are usually based on commercial reasons in which the listed companies simply cannot operate in a profitable manner.

The second manner a company can be delisted from a stock is where the company voluntary imforms the exchange that they no longer want to be listed. And a variation of this case, is the delisting of a listed subsidary is made by its holding company, in which the minority shareholder of the listed company is forced to choose between the offered compensation price or risk being involved in a private company, which would ultimately offers no transparency rights.

I have no problem at all with the first case. These are them koyak companies. Chap-lap companies which are losing money like crazy.

The second one, the privatisation and the subsequent delisting of the listed subsidiary, this one i really dun like at all.

It's just totally unfair to the minority shareholder and it makes a total mockery of the whole stock exchange.

Listed Companies should not be given the approval so easily to privatise their listed subsidary company in which the general investing public is forced or threatened with the issue of delisting. And as mentioned earlier once the company is delisted this offers the investor no transparency rights at all. So when a listed company is able to list and delist their subsidary companies as per their whimps and fancy this would make a total mockery of the stock exchange.

And what about the general offer price for the minority shareholders stake in that listed company? Would the minority shareholders get an offer that is fair or would the minority shareholder be placed in a disadvantage position? Would the premium offered over the existing share price to adequetly compensate the minority investors?

If no, this ultimately means that the minority investors would never be given a chance to being adequately compensated for the permanent withdrawal of a good investment opportunity.

And if this is the case, then this would contradict the government's plan to woo more investors into Bursa Malaysia cause investing would have indeed turned very unattractive, a game which is very biased against the investing public.

Privatisation and the subsequent delisting of Johor Port.

(Bloomberg) -- MMC Corp., a Malaysian builder and engineering group controlled by Syed Mokhtar Al-Bukhary, agreed to buy his 52 percent stake in Johor Port Bhd. for 427 million ringgit ($113 million), expanding its port business.MMC is buying 170.8 million Johor Port shares at 2.50 ringgit apiece from his Seaport Terminal (Johore) Sdn Bhd., it said today in a statement. MMC will later offer to buy the rest of Johor Port and delist it.

Let's look at some simple facts and figures.

This is what Johor Port has been earnings since fisal year 2001. (read from left to right)

58.1mil -> 60.1mil -> 74.8mil -> 83.9mil -> 83.4 mil (improving trend wor)

Most recent 4 quarters net profit totals some 100.962 million. (an eps of 30.5 sen)

Current year-to-date net profit (3 quarters) 88.098 mil.

Current year-to-date cash flow. ie piggy bank increased by some 41.742 mil.

Piggy bank cash? 286.787 mil. Loans? Some 180 million long term islamic loans.

Err... net cash about 106.787 mil lor... Johor Port has some 330 million shares. (so nett cash is already about 35.5 sen)

And then there is entry in the balance sheet which states that amount due from holding company is 50.223 million.

Sooooooo.....

MMC announcing to offer to buy from the minority sharholders of Johor Port some 170.755 million Johor Port shares at 2.50. Or cash moolah.... $426,887,505.00. They want to buy these shares with a subsequent plan to delist the share.

Issit fair?

And what about the issue of delisting? Doesn't it sound like take this offer or else you would left holding shares in a private company?

This morning the Busines Times had an article on it: Analysts welcome MMC buy of Johor Port

I am natutally not too pleased at how they have put this whole issue into perspective.

Analysts say the acquisition of Johor Port Bhd (JPB) will bring synergy between JPB and its sister port, Port of Tanjung Pelepas and advise JPB shareholders to take up the RM2.50 cash offer.

Of course it would bring synergy and monetary benefits for MMC but what just about the JPB minority shareholders?

Don't the minority shareholders or the investing public count for nothing?

Yeah, i know, i know these analysts have a duty to write but for whom do they write for?

Just imagine. If there is NO investing public, will these analysts ever exist? And for this privatisation issue, just who is more important? MMC or JPB minority shareholders?

In a deal where JPB shares is taken private, surely there must be due consideration for the minority shareholders? Tiok boh?

Or dun tell me that the minority shareholders merely represent OPM (other people's money) and that they are not important?

Or what if all these minority shareholders gives up.... what then? will there be a market left?

Worth considering?

Or am i just mumbling and bumbling along again?

Take the last part of the article.

OSK Research Sdn Bhd manager Chris Eng said he expects JPB to add some RM900.9 million to MMC’s net present value.“In terms of net profit, we expect MMC’s to rise by 4.5 per cent for FY06 and 9.1 per cent for FY07, assuming that the acquisition may be completed by June 2006,” he said, maintaining his fair value of RM2.55 per share for MMC. Eng also recommended that JPB shareholders take up the RM2.50 cash offer as it helps to mitigate the land development risk.

See the very last sentence, he recommended that the JPB shareholders take up the rm2.50 offer to mitigate the land development risk!

And again this is simply not right.

Take a step back.

That land development risk? That was the funky corporate exercise which caused the fundamentals of JPB deteriorate because it proposed that JPB to acquire 2,255 acres of leasehold mangrove land in Pontian, Johor, from its controlling shareholder (ahem!). A whopping RM383m deal that really made little commercial sense according to RHB research.

So we have a case in which JPB announced a shocking corporate exercise. This caused JPB shares to be depressed. And with the shares being depressed, MMC announces this whole privatisation thingy.

Oh consider this issue. Without this funky corporate exercise, would MMC being able to privatise JPB at such a low offer?

Take the following quote from yesterday's Business Times article.

Avenue Securities Sdn Bhd head of research Noor Azwa Mohammad Noor said that although the RM2.50 offer price is already at a premium to the current share price, he believes JPB stock should be worth more.“Based on my forecast FY06 earnings per share of 37.5 sen, at RM2.37, JPB is trading at FY06 price-earnings ratio (PER) of only 6.3 times, versus the three previous calendar years’ PER average of eight times.“Given its steady earnings profile, we believe the stock still offers further upside potential,” he added.

See the potential in JPB? And how cheap the current traded share price is?

So what do you think of this whole privatisation and subsequent delisting issue?

Fair onot?

Poor minority shareholders of JPB. First, they had to endure the ordeal of the company proposing a deal which made little commercial sense. Now the owners wants to privatise the company. And the offer price is rather low. And what options do they have? Accept or own shares in a delisted company!

Fair onot?

What say u all?

Sky.. oh sky.... u got eyes to see onot?

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Update: 16th Dec 2005

Corporate: MMC buys Johor Port... finally
By Maryann Tan

The Edge Weekly carried an article on this Johor Port privatisation issue.

Again... the whole focus is on MMC itself.

But just what the minorities?

Again... do or do they not realise that the minority shareholder is an important integral of the share market?

Without the minority shareholders, will there even be a share market?

Think about it!

Soooo.... what do you think if you read the following statements in that article?

Incensed by the acquisition of land as settlement of an inter-company loan with Seaport Terminal, minority shareholders will likely jump at the chance to liquidate an asset that was at great risk of deteriorating in quality.

"You could call it a fairy tale ending for minorities," says Chris Eng, transport analyst at OSK Securities, who, like most, agrees that it is best to take up the offer even if it may be a little below JPort's fair value of RM2.70.

Fairy tale ending?

gee!!

Consider the following again (let me just paste what i wrote earlier):

That land development risk? That was the funky corporate exercise which caused the fundamentals of JPB deteriorate because it proposed that JPB to acquire 2,255 acres of leasehold mangrove land in Pontian, Johor, from its controlling shareholder (ahem!). A whopping RM383m deal that really made little commercial sense according to RHB research.

So we have a case in which JPB announced a shocking corporate exercise. This caused JPB shares to be depressed. And with the shares being depressed, MMC announces this whole privatisation thingy. Oh consider this issue. Without this funky corporate exercise, would MMC being able to privatise JPB at such a low offer?

I really do not see how one can consider this a fairy tale ending!!!

And did u see the last paragraphs of the Edge article?

Infrastructure revenue (from its ports business) will be boosted by almost 50% to RM816.9 million, lifting total revenue to RM2.3 billion in fiscal year 2006. OSK expects net profit for the group to rise by 43% to RM289 million from the RM202.5 million forecast for this year, as a result.

Still, in spite of the improvement in net earnings, OSK is not adjusting its fair value of RM2.55 for the group because of higher gearing and additional risks from developing the land in Seaport Worldwide.

See? OSK themselves expects the net profit to be bang bang so geng!!!

But... but.... butt....... butttttt.......

"in spite of improvement in net earnings, OSK is not adjusting its fair value of rm2.55"

ahem.... ahem.... ahem...... why?

why...why...why....just tell why lah to all the minority shareholders why OSK is NOT adjusting the fair value!!!

Hmmmm.... fairy tale ending wor.....!!!