KUALA LUMPUR: In the past month, two companies that are in the pro-cess of being privatised upped their offer price at the eleventh hour in order to meet the requirements of their takeover exercises.
Analysts said that this sent a clear signal to major shareholders who are contemplating such exercises to not price their companies too low, despite the current market rout knocking down valuations.
To recap, on Jan 20 the controlling shareholders of DK Leather Corp Bhd — Danny Koek, his spouse Goh Paik Hiah and DK-MY Holdings Sdn Bhd — raised their takeover price from 52 sen to 55 sen.
Then on Feb 17, Japan’s Toyo Ink Manufacturing Co Ltd also revised its offer price for the remaining shares it did not own in Toyochem Corp Bhd from RM2.90 to RM3.20 per share.
In both cases, DK’s major shareholders and Toyo Ink had fallen short of the 90% shareholding requirement for the offer to become unconditional. When both had revised their offers, DK was holding an 86.3% stake while Toyo Ink held 88.64% of Toyochem’s shares.
The difference was, however, that DK’s original offer price was at a 67.7% premium to its net assets per share of 31 sen as at the end of September. Toyo Ink’s first offer in comparison was at a 27.1% discount to Toyochem’s net assets per share as at Sept 30, 2008.
However, while there is no common thread why the minority shareholders for both companies chose to hold out, analysts said it may be a harbinger of things to come.
More recently, IOI Corp Bhd announced that it was taking unit IOI Properties Bhd (IOIP) private at the beginning of February via combination of IOI Corp shares and cash.
Just recently, shipping concern Halim Mazmin Bhd’s controlling shareholders, executive chairman and managing director Tan Sri Halim Mohammad and his wife Puan Sri Mazmin Noordin, proposed to take the company private for 60 sen per share via a selective capital reduction and repayment exercise.
To recap, IOI Corp’s offer for its property arm valued the latter at RM2.598 per share. The sticking point for the minorities was that the offer price was at a huge discount to IOIP’s NAV of RM3.95 per share.
However, most analysts expected IOIP’s minorities to accept the offer, as they would not risk holding shares in an unlisted entity.
In the case of Halim Mazmin, however, industry observers said while the 60 sen offer price was at a premium to its current share price, critics said it did not reflect the true valuation of the company.
Not only is the offer price at a 28.3% discount to Halim Mazmin’s net assets per share of 83.74 sen as at the end of Dec 31, the company itself is cash rich. According to its financial results for FY2008, its cash pile was RM263.43 million as at the end of last year.
Based on that figure, cash per share for Halim Mazmin works out to 82.8 sen per share. Its cash is even higher than that of its market cap, which currently stands at RM184.4 million.
According to Halim, the reason he was taking the company private now was because the outlook for the shipping industry was bleak due to the declining economy. However, given Halim Mazmin’s cash pile and assets in the form of vessels, it may prove a hard sell for the company’s minority shareholders, according to industry observers.
And it is not uncommon for a privatisation deal to fail due to strong opposition from minority shareholders. The most recent example is that of trading house Harrisons Holdings (M) Bhd.
When its major shareholder Bumi Raya International Holding Co Ltd attempted to take the company private for RM1.20 per share, the offer was met with cries from shareholders that it was too low.
Even when Bumi Raya revised the offer to RM1.45, most still refused to take the deal as it was only equivalent to 45% of Harrisons’ book value. The deal eventually lapsed and now Bumi Raya is forced to wait for six months before trying again.
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