By Devanesan Evanson
THE recent mixed recommendation by FGV Holdings Bhd’s five disinterested directors and its independent adviser RHB Investment Bank pertaining to the take-over offer of the company by the Federal Land Development Authority (FELDA) has put many minority shareholders in a quandary.
It is surely not as easy as listening to both opinions and decide whether to accept or reject the offer on the table.
Some minority shareholders will be happy with the offer price of RM1.30 and some will not be. Nevertheless, shareholders must make an informed decision.
For a start, they must read the independent advice circular (IAC) and the disinterested directors’ recommendations, both of which is publicly available from Bursa Malaysia’s website.
To re-cap, the independent adviser (IA) has recommended that shareholders accept the offer price of RM1.30. It stated in the IAC in its opinion that the offer is NOT FAIR but REASONABLE.
The IA has stated that the offer price is not fair as it is below the fair value range of RM1.42 to RM1.60 per FGV share.
Nevertheless, the IA recommended that shareholders ACCEPT the offer as it is deemed REASONABLE. IAs are licensed to give investment advice.
Then we have the five disinterested directors – who though not licensed to give investment advice – have a legitimate right to make a recommendation to the shareholders as they as directors know FGV more intimately.
They do not concur with the IA’s recommendation. They have advised minority shareholders not to accept the offer. They have not stated what is – in their opinion – a fair offer price for the FGV share.
Presumably, based on the IA’s fair value range of RM1.42 to RM1.60 per FGV share, the lowest offer price to make the offer FAIR would be RM1.42.
Although the fair value has been estimated at a minimum of RM1.42, there is no guarantee that the market will value the shares at this price.
It is common for shares to be priced below their fair value, what more given the current dire economic conditions. In fact, since the last week of Sept 2020, the share price of FGV has not exceeded RM1.31 (but these are historic prices).
Some shareholders may hope for better prices in the future but we are told that one should not invest (or stay invested) based on ‘hope’; there should be a premise or bases for our investment decision.
‘Hope’ has been candidly defined as ‘undiscovered future disappointment’. Some have put it bluntly by saying that hope has no place in stock market investment decisions.
If enough shareholders accept FELDA’s offer of RM1.30, the privatisation and delisting will happen.
At this point of time, we do not know how many shareholders will follow the IA’s advice and how many will follow the disinterested directors’ advice.– Jan 26, 2021
Devanesan Evanson is the CEO of the Minority Shareholders Watch Group, an independent research organisation to encourage good governance among public listed companies with the objective of raising shareholder value over time. He can be reached at [email protected].
The views expressed are solely of the author and do not necessarily reflect those of Focus Malaysia.
