PRAISE should be given where praise is due.
And – this is rarely the case in Malaysia – in the case of Tanjong Plc, minority shareholders have a buyout offer of their shares at what appears to Minority Shareholder Watchdog Group (MSWG) as fair and at a reasonable price.
Recall Tanjong’s recent announcement that private companies owned by its major owner T. Ananda Krishnan (and his partners) offered to the buy the rest of the shares in Tanjong not already owned by them, at RM21.80 per share in cash. The minority portion alone is valued at up to RM4.7bil because his private company, Usaha Tegas Sdn Bhd, and his partners already own 46.9% of Tanjong and do not intend to maintain Tanjong’s listing status.
The premium on offer is quite attractive. At RM21.80 a share, the offer represents a 24% premium to Tanjong’s last traded share price prior to suspension and a 25% premium over its volume-weighted average price over the past six months. And perhaps most importantly, the offer price is 9.5% higher than Tanjong’s all-time high of RM19.90.
The reasons for him making this move are many and multifold. At a macro level, privatising Tanjong will offer greater flexibility in restructuring the group’s loss-making tote board and German leisure business. It also allows him to make some tough decisions over his numbers forecasting, Tanjong Golden Village cinema and property development units, all of which although profitable, are not core to the company.
Tanjong’s 2009 financial results are a good indication of the situation the company found itself in, pre-privatisation. Power generation is overwhelmingly Tanjong’s earnings driver, contributing 76% of profits at operating level. Its numbers forecast totalisator business is the next biggest, contributing 18% of operating profit.
The rest of its profitable businesses in property and cinemas hardly make a dent to earnings, while its German Tropical Islands leisure business and racing totalisator units are loss-making and as far removed from the business of power generation as possible.
And because of the hotch-potch nature of its business, the market didn’t accord it a valuation that would commensurate with that of a power play. Tanjong’s shares traded in the region of 10.5 times earnings pre-suspension price, which is as much as between 25% discount to local utility peers like YTL Power Bhd and MMC Corp Bhd, and a larger almost 30% discount to pure numbers forecast operators (NFO) peers like Berjaya Sports Toto.
In other words, the market has accorded Tanjong a valuation akin to a company suffering from an identity crisis – is it a power or a gaming company?
Other reasons for the privatisation also become clear – because it is involved in gaming, Tanjong is unable to tap Islamic institutional funds – a major impediment, given its stated need to double power generation capacity from the current 4000 megawatt by 2014. Without the ability to tap cash-rich Middle Eastern funds in the bond markets, a vital source of cheap capital has effectively been switched off.
Whether or not Tanjong will return in future as a pure gaming NFO (with a stable but high dividend yielding appeal), or as a pure power play (with a balance of growth and yield), is not the issue here.
The true issue, from a minority shareholder standpoint, is that equitability has been the order of the day. Whether through sheer luck or by design, the timing cannot be more opportune. Twelve months prior to the offer, Tanjong ended its trading at RM14.10. If the buyout offer had been made then, the offer price may not be as attractive.
Twenty four months ago, Tanjong was traded at RM12.20. Clearly, Ananda has made the offer at a very attractive point in the price curve, Tanjong benefiting as it has from the global economic recovery.
Another point to note is this: Ananda and his allies have chosen the takeover approach – which we view as significantly fairer – where a minimum 90% of shareholder acceptance is required before the company can be delisted.
The positive equitability, timing and terms of this deal forms the crux of this opinion today: Ananda’s decision to take this more onerous but more equitable of routes deserves mention.
Since it has a higher threshold for acceptance, we believe that a commensurately higher premium had been accorded to make the valuation more compelling for minority shareholders.
And in so doing, Ananda can expect a much smoother ride.
Comment by Rita Benoy Bushon
The writer is chief executive officer of the Minority Shareholder Watchdog Group
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