Focus View
General offers should not short-change minorities
FocusM team | 19 Oct 2017 20:19
The recent spate of takeover offers by controlling shareholders of listed companies has raised a pertinent issue – are minority shareholders being short-changed? 

In many of these cases, the price offered is far below the initial public offering (IPO) price when these companies went public.   

Usually, in a general offer (GO), a controlling shareholder will offer to pay a slight premium when bidding for the remaining shares he does not own. Sometimes, it could also be at a discount. 

In most GO cases, a common reason given is that the controlling shareholder is disappointed with the price performance of the shares and hence wants to take it private. 
 
But what about the minorities? Let’s say the company’s IPO price was RM1.50. Within a span of three years, the shares gradually slip to 50 sen while its net asset value (NAV) is 90 sen.
 
The controlling shareholder makes a GO for 55 sen, which is 10% above the market price. Minorities are told they should be grateful they are being offered a premium. 

But 55 sen is significantly below the NAV and nearly one-third the IPO price. What’s the use of offering a premium to the market price when in fact it is way below the IPO price?

The minorities would have bought at RM1.50 during the IPO based on all the promises in the prospectus and glowing analyst reports.

But after three years, all they get back is 55 sen, suffering a loss of 95 sen or 63%. Worse, the controlling shareholder may asset strip the company and recoup his investment following the GO. 

In other words, he takes the company private on the cheap. So shouldn’t the controlling shareholder have been compelled to make a GO of RM1.50 or the NAV of 90 sen at least? 
 
It raises the question of how fair takeover offers are. Should there be new rules to ensure minority shareholders’ rights are taken care of?

It’s easy for regulators to say investors should do their homework  and take the risk when subscribing to IPOs. But what if the company is mismanaged following the IPO? 

In such cases, the least the authorities could do is to ensure minorities get a fair deal from unscrupulous controlling shareholders. 

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