By Devanesan Evanson
“OH what a tangled web we weave” is an opening line of Marmion: A Tale of Flodden Field by 19th century Scottish author, Sir Walter Scott.
This phrase aptly describes the twist and turns of the FGV Holdings Bhd’s saga.
Now, in an about-turn of events, the Federal Land Development Authority’s (FELDA) is planning to make a mandatory takeover offer to FGV’s minority shareholders at RM1.30 per share.
FELDA is buying over a 6.1% stake held by Kumpulan Wang Persaraan (Diperbadankan) (KWAP) and a 7.78% interest held by Urusharta Jamaah Sdn Bhd (Proposed Acquisition). This raises FELDA’s stake to 35.12%.
Upon completion of the proposed share acquisition, FELDA, together with the parties acting in concert (PACs), will collectively hold more than 50% of FGV shares, thus triggering a mandatory takeover offer (MO).
Earlier, we read that FELDA had obtained the Cabinet’s approval to terminate its land lease agreement (LLA) with FGV. There was also talk that FELDA wanted to take over FGV’s oil palm mills.
We had also written about the uncertainty about the quantum of compensation that FGV would receive pursuant to the LLA termination. This was an important consideration for minority shareholders to enable them to make an informed investment decision.
Things to consider
Now, with the proposed mandatory offer of RM1.30 per share, there are some issues for minority shareholders to consider.
Firstly, is the offer reasonable and fair? The offer price of RM1.30 is well above the net asset per share of RM1.13 as of Sept 30. Meanwhile, the latest quarterly earnings per share (EPS) is 3.8 sen and the cumulative nine-month EPS is 0.4 sen.
This must be juxtaposed with two important factors affecting the oil palm industry: higher CPO prices and the acute shortage of foreign oil palm workers.
We will have to wait for the independent advisor and the board to give their opinion on the reasonableness and fairness of the offer.
Secondly, critical information such as the listing status of FGV has not been disclosed to the public.
Minority shareholders tend to accept the offer if the listing status is not maintained as they do not wish to invest in an unlisted company where price discovery mechanism and a ready market is not available.
Surely, FELDA would be in-the-know as to the eventual listing status of FGV. It is puzzling why such important information was not made known to the public by FELDA.
Thirdly, in the event the MO does not materialise, will FELDA’s earlier intention of terminating the LLA with FGV still stand? If it does, the compensation for LLA termination will be a relevant consideration for minority shareholders.
Lastly, the funding for the proposed acquisition has yet to be obtained and finalised. This is a condition precedent to be fulfilled by FELDA for the proposed acquisition before undertaking the proposed MO.
For long-term investors, investing in FGV had been a misadventure. Recall that FGV was listed at RM4.55 in 2012 and was touted as the third largest IPO listing in the world that year. In December 2018, FGV dropped to an all-time low of 64 sen.
FGV has been plagued with a slew of legacy issues.
Many minority shareholders are still nursing their wounds, having invested at the IPO price, or at prices higher than the offer price of RM1.30.
The stock market does not promise a profit; minority shareholders will have to monitor events as they unravel and make timely and informed decisions. – Dec 14, 2020
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.
