What Do I Think Of NSTP Privatisation?

• The Contrarian said...
  
  Dear Moola,would u kindly do a review on NSTP/Media prima dealing, is it right to make deals like this anymore, and do u feel the price is justifiable?? how would u value such a deal, im clearly aware how illiquid assets can be but NAV of 4.50.. definely deserve more than 2 bucks and a few warrants.... Thank you very much

I have always argued AGAINST the privatisation of a LISTED SUBSIDIARY.

End results always remain the same.

The minority shareholders are always short changed.

Think outside of the box for a minute.

Why do companies get listed? Besides getting public funding so that the company can progress into a bigger company, the bottom line is that this is a profitable exercise for the majority shareholders. Now why do companies want to be delisted? If there is NO profit to be made, would any sane company wants to be a private company?

Same with listing and delisting of subsidiary companies.

Now in Media Prima case, if there is NO profit, why should it go through all the hassle to delist its subsidiary company, NSTP?

Does Media Prima have nothing else better to do?

Now let's look from a minority shareholder or an investor point of view.

Why does any sane person wants to 'invest' in another company?

Bottom line? They want to make money.

Now as everyone knows, investing in the stock market has MASSIVE risks.

Now the first big risk is the stock selection. Buy the wrong stock and the investor is most likely to be screwed.

The company could be good and the company could have a decent business economics. But then, business economics and business fortunes do changes and these changes sometimes are unavoidable. Worse still, many companies might even go under due to unforeseen changes.

What if there is a change of management and the new management shows total no respect to its shareholders and runs the company down?

And what about stock market crashes? Look at our Malaysian stock market history. How many local stock market crashes have we seen? And if you put in a ten-year time frame, how many stock market crashes have we seen per decade?

I could go on and on.

Ah, but then bull markets do happen too. Undeniable. Bull markets can make many rich! Yes, huge fortunes can be made and I'm sure many have made this round.

Which is why many take the RISK of investing in the stock market. They take the risk because they want to make big money and they are willing to take the risk despite the many possible risks involved.

However, one thing is DEAD certain.

It would make logical sense to these investors that they get FULLY COMPENSATED for taking the risk in investing in the stock market.

But what if there is NO FULL COMPENSATION?

What if the upside potential or the potential reward is capped?

Would you want to invest in an investment which has unlimited downside risk and has a possible reward capped at 20% or 50%? Is the 50% reward even guaranteed? Is it cast in the stone that the investor could gain that much?

It wouldn't make sense for such an investment, yes?

Which applies to the stock markets.

When one invest in a stock, one would like to be given the opportunity to make unlimited profit. They want to be given a chance to be fully compensated for taking the RISK in investing a stock.

Now put this into one's investment in a listed subsidiary. The same stock market risks exists as usual but once a listed subsidiary HAS THE OPTION of delisting its subs diary, then the investor is burdened by another extreme handicap. The investor does NOT know if the compensation is fair. Yes, the investor does not know if the privatisation offer is fair and judging from past history, privatisation of listed subsidiaries had been done at extreme low prices. Worse still the investor do not know when such a privatisation would even happen.

Now take NSTP privatisation offer.

Is it fair? Or is it grossly unfair?

One could argue and argue and argue using all the valuation methods proving the offer is unfair but would it matter?

Look around us.

Does anyone really care?

Here's one suggestion I can offer. In the future, try to forgo ALL OPPORTUNITIES when it comes to stocks which are listed subsidiary. Yes avoid them at all cost because as long as no one opposes the delisting of a listed subsidiary in Bursa Malaysia, then such privatisation will always happen and ultimately, the minority shareholders would be short changed!