Sweet deal, smooth execution. That sums up the privatisation process of power and gaming outfit Tanjong plc.
In just less than two months after announcing its conditional buyout offer, Tanjong Capital Sdn Bhd – a special purpose vehicle set up by Usaha Tegas Sdn Bhd and its allies for the purpose of taking Tanjong private – had already received enough acceptances to give it more than 90% ownership of Tanjong.
Hardly surprising, given the attractive offer of RM21.80 per share, which represented a premium of 22% over Tanjong’s last traded price of RM17.88 before the takeover bid. In fact, every stock analyst in town had encouraged shareholders to take the deal.
Tanjong Capital’s buyout offer became unconditional as of last Monday, and the company proceeded to exercise its rights to compulsorily acquire all the remaining shares it did not already own in Tanjong the next day.
Trading of Tanjong shares will be suspended from today to facilitate the takeover by Tanjong Capital, and in line with target, the process of delisting Tanjong will be completed by the end of this month.
So, after almost two decades of being a fixture in the local bourse and the London Stock Exchange (LSE), it’s time for this steadfast stock to bid farewell. (Its listing status in LSE had been cancelled since last month.)
Looking back, Tanjong has indeed come a long way to build its strength and resilience and became a favourite play, particularly among institutional investors, for the many years that it had been listed.
It is interesting to note that Tanjong’s roots were actually founded in England back in 1926 when it was then known as Tanjong Tin Dredging Ltd. After a corporate restructuring and the injection of gaming outfit Pan Malaysian Pools Sdn Bhd into its business stable in 1991, Tanjong assumed its present name and went on to list on the then Kuala Lumpur Stock Exchange (now Bursa Malaysia) and LSE.
Businessman tycoon T. Ananda Krishnan has been a key shareholder in Tanjong all along, with his 30.9% stake in the company being held through Usaha Tegas – his private investment vehicle.
Under the stewardship of Ananda – the man famous for his maverick business sense – Tanjong has grown steadily to become one of the stalwarts of Corporate Malaysia. With a market capitalisation of around RM8.5bil, Tanjong stood among the top 30 largest listed companies in the country, and it represented about 1.4% of the weightage of FTSE Bursa Malaysia Kuala Lumpur Composite Index.
(The void it leaves behind in the index composition post-delisting will be replaced by construction outfit Gamuda Bhd, which has a market capitalisation of around RM7.5bil.)
It has often been argued that resilience is one of the two key factors that appeal to Tanjong investors. This is due to the company’s wide range of businesses, which included power generation, gaming, leisure and property investment.
However, it is the company’s diversity that caused it to suffer from a conglomerate discount valuation, resulting in its shares consistently being undervalued by the market. Based on its last traded price before the general offer, Tanjong was valued on a price-earning ratio of around 11 times only, compared with the industry average of 14 to 15 times.
The market’s valuation of Tanjong’s worth, as analysts said, did not reflect the company’s strong fundamentals, as evidenced in its financial results.
Over the span of five years, Tanjong had grown its revenue from RM1.97bil for the financial year (FY) ended Jan 31, 2006, to RM3.9bil for FY2010. Its operating profit, on the other hand, grew from RM557.38mil in FY2006 to RM1.22bil in FY2010.
So far, the lucrative power business has been the major driver of Tanjong’s financial performance. The division contributed about 70% to group revenue and almost 80% to operating profit based on its recent financial report for the first quarter ended April 30.
Tanjong ventured into the power business in 1998 when it acquired an 84% stake in independent power producer (IPP) Powertek Bhd. Tanjong subsequently raised its stake in the latter to 100% in 2003.
Between 2005 and 2007, Tanjong began to add foreign power assets into its stable. These included a 10% stake in the Taweelah B independent water and power project in the United Arab Emirates; a 100% stake in Kuasa Nusajaya (L) Ltd that came with two power plants in Egypt; and a 55% stake in Pendekar Energy (L) Ltd, through which it added seven plants spread across Egypt, Bangladesh, Pakistan and Sri Lanka into its stable.
In total, Tanjong presently operates 13 power plants in Malaysia and overseas, with total net generating capacity of 3,951 MW.
The company has been open about its ambition to become a global player in the power generation industry, with plans to double its power generation capacity to 6,000MW over the next four to five years.
It’s a new and exciting phase for Tanjong, one that is aggressively expansionary, and which requires substantial capital expenditure. And if the company were to remain as a listed entity, this route would imply less inclination to pay generous dividends to shareholders for several years.
Tanjong had so far been generous with its dividend payouts, increasing them from 70 sen per share in FY2006 to RM1 in FY2010. A reverse of the trend could result in its share price being hammered, hence further undervaluing the company’s potential. So, privatisation makes sense.
Meanwhile, according to sources, Usaha Tegas is already finalising plans to sell the gaming business of Tanjong after the latter’s privatisation. It’s known that Ananda had little interest in growing the gaming business, which is seen to be plateauing, so such news wouldn’t surprise anyone.
Going forward, it’s obvious that power will be the lifeblood of Tanjong. Given the growing prospects of the sector in a power-hungry world, one can only expect it to give the company the boost towards a stronger future.
By CECILIA KOK
cecilia_kok@thestar.com.my
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