Halim Mazmin: Fair Or Sweet Deal?

Blogged the other day, Halim Mazmin To Be Taken Private

Jasonred79 said...

• Well... overall, I think that this is a win-win situation for both sides. Current shareholders get a 50% upside, and the major shareholder gets some profits as he disposes of those ships and closes down the company.
  
  Of course, the MOST fair thing to do would be to just wind down the company immediately, which could see shareholders getting more than that.
  
  Possibly.
  
  I need to look at the TOTAL assets and liabilities, as well as their makeup, to make my decision here.
  
  Cash - liabilities = 150 million.
  At 60 sen per share, the are valuing the company at... RM170-190 million?
  
  So, overall, probably a fair deal, IMHO.
  I wouldn't say it is extremely generous to minority shareholders, but nor is it supremely unfair either.

My reply:

• Jason,
  
  I wasn't talking about fair or not fair.
  
  I was talking about a sweet deal for the boss.
  
  To buy the rest of the shares the boss doesn't own, it would cost him just 70 million.
  
  And what does he get for that 70 million?
  
  Well he gets to own the whole of a company called Halim Mazmin who has some "RM263.43 million in cash and liabilities of RM111.47 million" in its balance sheet.
  
  Sweet?

Jasonred79 said...

• Hmmm... let's see. He pays RM70 million... and in return gets the remaining 37%-40% of Halim...
  So he gets around 40% of 263m cash and 111m liabilities.
  
  Doesn't sound that sweet to me, actually.
  Sounds like he is paying Rm70 million to get something worth Rm60 million.
  
  Of course, their are probably a lot of non-cash assets there which will make the deal look more attractive for him...

On today's Star Business Valued less than cash, CS Tan gave the following opinion.

• AS stock markets continue to plummet, share prices have reached levels that investors had not expected.
  
  The unexpected low prices have ensured the trend of taking companies private continues.
  
  The latest of these involved Halim Mazmin Bhd last week when it was announced major shareholders Tan Sri Halim Mohammad and Puan Sri Mazmin Noordin propose to privatise the company.
  
  As shipping group Halim Mazmin sailed into unchartered waters of deep value, taking it private brings exceptional value for Halim, who is executive chairman, and his wife Mazmin, an executive director.
  
  They propose an offer of 60 sen cash each to be paid to minority shareholders by Halim Mazmin following which, all the shares of minority shareholders would be cancelled.
  
  That would involve payment of about RM74mil cash to minority shareholders as they collectively own 122.9 million shares.
  
  That’s well within the means of Halim Mazmin. The company had cash of RM263mil and borrowings of RM107mil, which translated into net cash of RM156mil at the end of last year.
  
  Hence, after paying off minority shareholders, the company would still have RM82mil cash.
  
  Besides that cash, Halim Mazmin had about RM106mil in fixed assets, principally a few cargo ships. That’s a rich company to wholly own.
  
  There’s this huge embedded value because Halim Mazmin traded at just around 40 sen before the offer, and that gave it a total market value of just RM125mil.
  
  On that market value, the stake of Halim and Mazmin in the company was worth RM76mil. That is less than the cash in the company (RM82mil) after minority shareholders are paid off.
  
  In owning the company privately, they would have all the fixed assets, namely the vessels, that had a book value of RM106mil.
  
  As for minority shareholders, the offer enables them to exit at 60 sen a share. If they reject the offer, the price would probably drop back to 40 sen.
  
  Of course, they would prefer a liquidation of the company in which case, they may get the net tangible asset value of 83 sen, but that’s not on the table. Further, it’s not possible to sell vessels at this time at book value in view of the depressed market.
  
  It’s up to minority shareholders. For the exercise to proceed, it requires the approval of at least 75% of the shareholders, present and voting, at an EGM. Halim and Mazmin would abstain from voting at the EGM, the company said. It is believed they can’t vote, being the offerors.

Fair or sweet?

In my flawed opinion, I reckon that there's a lesson here.

The cash per share yardstick.

I have seen far too many intelligent people making a massively wrong assumption with the yardstick, which they assume that they can FULL fair value based on the cash per yard stick.

Why?

The board owners are in full control of whatever cash in the listed entity. And if the board owners want to privatise the company, there is ALWAYS a possibility that the owners would make a deal that's in their favour. Which means one would most likely NOT see an offer that matches closes to what the cash per share yardstick indicates.

Think about it.

A privatisation or even a buyout happens when there is money to be made by the offer-er. If there is no money to be made, why bother? And if they are in the business of wanting to make money, what about the other shareholders? Do you reckon they would get a fair or a sweet deal?

Final words.

Cash per share?

For me, it's a good indicator to know that a company has more cash than borrowings. It's just a simple healthy indicator. That's all. To assume that I can get full value for the cash is simply wishful thinking. Yup, it's sad but it's true.