- Thursday September 20, 2012
Minority shareholders should vote with all the facts
Raison D'etre - Risen Jayaseelan
MINORITY shareholders should not hesitate to vote for their rights in corporate deals that involve their companies.
They should even bandy together to strengthen their voting power in order to protect their rights. But they should also vote with all the facts in hand. Consider the case of Bandar Raya Developments Bhd (BRDB). The major shareholder is offering RM2.90 per share. That's a price that the stock has never traded at before so it does seem attractive.
However, valuation wise, there are those who opine that the assets of the company are worth more. So, should minority shareholders hold out for more? Perhaps.
But before doing so, they need to consider two things.
One, that there has been no competing bid coming in, so far at least. Do note that for the major shareholder, Ambang Sehati Sdn Bhd, which owns 18.5% of BRDB, to buy out the rest of the shareholders, it is going to fork out a whopping RM1.17bil in cash.
That's a lot of money. Is there really anyone else out there willing to pay so much for BRDB in cash? If you are convinced there is, and that such a party will make a counter offer, then hold onto that BRDB stock.
You will be happy if that counter bid came through. But what if no one were to make a higher offer?
And this leads us to the second thing minority shareholders should think about: that if this deal falls through and there's no other competing bidder coming into the picture, BRDB stock is very likely going to slide down to the levels it traded at before all this takeover hoopla came about. That's around under the RM2.40 per share mark.
And that's gonna wipe off a good 50 sen per share of your holding.
It is most likely not going to trade at the estimated revised net asset value price of RM3.81, a valuation given by the independent advisor.
Sadly, most property-related stocks trade at discounts to their net asset values.
Sure, one may think that if the major shareholder is willing to pay RM2.90 for the company, he knows something that we don't. And worse, what if he flips the company or its assets for a higher price soon after the privatisation?
If Ambang Sehati does that, it would not a leave a good taste among minorities. (Recall that one other tycoon did something similar and suffered albeit a short-lived opprobrium for it?)
But minority shareholders have no way of knowing what the owner's going to do if and when he privatises the company. All that you know is that there's a RM2.90 cash offer on the table. You could take it and run or you could seek to fight. But if you want to hang on and fight, know all the facts and risks.
News editor Risen Jayaseelan is still puzzled that despite all the letters written and phone calls made by minority shareholders asking for a higher buyout price in the Glenealy Plantations (Malaya) Bhd, that these shareholders were only able to count for a mere 4.23% of votes.
Hmmm.... interesting.
Accept the offer juest because there might not be another better offer?
Seriously?
Ok, shall I call up my property agent and tell her that BSC is for sale and ask what kind of price that prime asset could fetch?
All I know is if the offer is not fair, why should I accept the offer price?
And in another interesting article: Shareholders should voice dissent more strongly
- Thursday September 20, 2012
Shareholders should voice dissent more strongly
Comment by Rita Benoy Bushon
THE case of the recent privatisation of Glenealy Plantations (M) Bhd is highlighted for the broader interest of the capital market. Thus, I would like to recap this privatisation exercise.
Samling Strategic Corp Sdn Bhd has proposed to privatise Hong Kong-listed unit Samling Global, in turn triggering a need to privatise Glenealy and its associate company Lingui Developments Bhd.
Samling Global subsequently proposed a privatisation offer for the remaining shares in Glenealy at RM7.50 per share. A dividend of 52.75 sen was subsequently given a day before the court-convened meeting.
We argued that when a company's value is inextricably linked to its land, not undertaking to revalue its most prized asset in making an offer to privatise is unacceptable. Especially so in this case where the valuations were based on book value of the assets in 1998, some 14 years ago.
Though the law is silent on revaluations of assets in privatisation exercises, we urge the company directors to embrace best practices and undertake such exercises before the deal is tabled at the company meeting.
In the absence of such voluntary revaluations, the regulators must then compel companies to undertake the revaluations. At the very least, doing so would have introduced an element of price discovery always an important element when a particular stock is as illiquid as Glenealy.
What about the other gatekeepers? Current practice requires independent advisers to be hired (and be paid for) by the target companies. They are obliged to advise the disinterested shareholders on the offer in a transparent manner and to disclose to them the salient and material information so that an informed decision can be made.
As such, on what basis did the independent adviser state it was fair when the current land value was not even known?
The independent advisers in the same breath also stated that the palm oil industry remained “positive with strong demand and firm prices,” and that “between 2007 and 2011, Glenealy had been returning uninterrupted profits.” More so, that would mean there is intrinsic value in the company which is not reflected in the share price currently.
In addition, Glenealy has previously been a thinly-traded stock and thus the market price does not mirror its true value. In this instance, a revaluation is even more important to make apparent the current value.
Despite all this, minorities voted for the resolution.
Glenealy's 54% owner Samling Group had proposed a resolution that needed 75% approval from the shareholders who are present and voting at the CCM. It also requires not more than 10% of the disinterested shareholders that vote against this resolution for the deal to go through.
The offer was voted through by 331 shareholders in the privatisation bid, a number that represented 85.31% of the total number of shareholders present in person or by proxy at the meeting.
Minority shareholders owning 4.23% of the shares opposed the deal but this was not sufficient as it did not reach the 10% required level.
I can only rationalise this mom-and-pop retail investors trait who usually think that they are at the losing end, giving in to sweeteners and consequently choosing the path of least resistance when accepting the offer with reliance on independent advice.
Lastly, we urge that minority shareholders stand up and voice their dissent more strongly at the meetings if they believe the offer is not in their best interest, especially the institutional investors who are more savvy and have the muscle to influence the outcome.
The regulators too must look into similar deals to protect the interest of the minority shareholders.
Rita Benoy Bushon is chief executive officer of Minority Shareholder Watchdog Group.
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