Saturday, January 22, 2011

Road blocks in MTD privatisation

The bid by joint offerors holding a stake of more than 50% in MTD Capital Bhd to take over the remaining shares in the group at RM9.50 per share may not materialise now that the stock has closed above the offer price.

Moreover, the independent adviser to the board and shareholders on the reasonableness of the proposed offer has recommended that the current offer not be accepted.

An industry observer said it would be interesting to monitor the shares in the country’s second largest highway operator today, adding that market forces would likely determine if the joint offerors would consider revising their offer.

“Analysts had expected a minimal upside to MTD’s share price since the proposed offer. We should not rule out the possibility that the stock could have surged due to arbitrage opportunities,” he told The Edge Financial Daily.

Nevertheless, the analysts also said that the strong earnings upside and potential for capacity expansion in MTD, backed by a “reasonably healthy” balance sheet, might see minority shareholders demanding a higher price instead of accepting the offer of RM9.50 per share.

On Wednesday, shares in MTD rose 11 sen to close at RM9.61 with 187,200 units traded. The counter also hit a 52-week high of RM9.63 earlier in the day. It has risen 1.91% year-to-date.

Data indicates the group has a market capitalisation of RM2.64 billion and is currently trading at an estimated consensus price-to-earnings ratio of 34.32 times.

Last month, four private companies holding a total stake of 53.13% in MTD made a conditional takeover offer to acquire the remaining stake of 46.87% of the issued and paid-up capital of MTD for a cash offer of RM9.50 per share, or a total RM1.1 billion.

The joint offerors — Nikvest Sdn Bhd, Alloy Consolidated Sdn Bhd (Alloy), Alloy Concrete Engineering Sdn Bhd (ACE) and Alloy Capital Sdn Bhd (AC) — hold 131.48 million MTD shares in total. The Alloy group and Nikvest are vehicles of MTD’s group executive chairman Datuk Dr Nik Hussain Abdul Rahman and his family.

Meanwhile, AmInvestment Bank recommends that shareholders reject the offer, which it views as “not fair” and “not reasonable,” adding that the offer might not have fully accounted for the future potential of the MTD Group.

On Wednesday, in an independent advisory circular to shareholders, AmInvestment said, among other things, the cash offer of RM9.50 per share represented a discount of 25%, or RM3.22, from its sum-of-the-parts valuation of RM12.72 per MTD share. It stressed that the offer price represented “too substantial” a discount to be deemed fair.

However, it added that, in order to realise the full RM12.72 (in present value terms), shareholders would have to maintain their shareholdings in MTD for the entire duration of its concessions with the assumption that MTD distributes all its net cash flows derived from its businesses and realisation of all MTD’s assets.

MTD’s toll concessions in Malaysia will expire in 2032, while that of the SLEX highway in the Philippines will end in 2036. In Malaysia, MTD has concessions for four highways: the Kuala Lumpur-Karak, East Coast Expressway Phase I, KL-Seremban Expressway, and East West Link Expressway.

AmInvestment also said, as at the latest practicable date (Jan 13), MTD shares’ closing price was RM9.50 (equivalent to the offer price), having traded to a daily high of RM9.51 and low of RM9.48.

However, the bank also notes that the highest closing price of MTD shares for the past five years to Dec 20 last year, was RM9 on Dec 17, while the lowest was RM1.44 on June 26, 2006, with the average market price for the past five years at RM2.72, or 71.4% below the offer price.

The bank said as at Jan 13, the joint offerors held a 55.8% stake in MTD and might possibly accumulate an even higher shareholding as a result of acceptances received soon after the offer.

But, with the number of shares held by non-public shareholders at about 72.6% as at Jan 13, further acquisitions of shares by the offerors may affect the trading liquidity of MTD shares, said AmInvestment. - by Yong Min Wei, theedgemalaysia.com

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