Sunday, 25 May 2014

Case Studies of Unsuccessful Privatisations

In an earlier blog post on Are Investors Short-Changing Themselves Over Privatisation Deals?, I had discussed 3 cases of unsuccessful privatisations and commented that investors who had rejected the privatisation offers had generally fared better than those who had accepted the offers. A search on the internet revealed that there are more unsuccessful privatisations on the Singapore Exchange than initially thought. In this blog post, we will do a more comprehensive study of the outcome of unsuccessful privatisations.

The table below shows the companies that have at least one unsuccessful privatisation and compares the offer price with the current stock price plus all dividends received to-date since the close of the privatisation offer. The table also shows the returns investor would get from rejecting the privatisation offer and holding the shares till today. 2 of the companies (namely CK Tang and Pertama) were eventually successfully privatised and the successful privatisation offer price is used to compute investors' returns had they rejected the earlier privatisation offer. Another 2 companies (namely CK Tang and Nera Tel) have 2 unsuccessful privatisations. Only the later privatisation offer is used to compute the overall average and median returns from these unsuccessful privatisations.

Company Offer Timeline Offer Price Current Price Total Dividends Total Returns %
Returns
Remarks
CK Tang Nov 03  $   0.420  $   0.830  $   0.003  $   0.833 98% Privatised at $0.83
CK Tang Jan 06  $   0.650  $   0.830  $   0.003  $   0.833 28% Privatised at $0.83
China MZ Sep 13  $   1.120  $   0.895  $   0.010  $   0.905 -19% Reinstated free float
Eastern Jun 12  $   0.180  $   0.290  $        -    $   0.290 61%
F&N Jan 13  $   9.550  $   3.090  $   7.790  $ 10.880 14% Reinstated free float
Guocoleisure Jan 05  $   1.250  $   1.065  $   0.185  $   1.250 0%
K1 Ventures Jun 12  $   0.135  $   0.177  $   0.085  $   0.262 94%
Kingboard May 09  $   0.210  $   0.185  $   0.006  $   0.191 -9%
KS Energy Jun 11  $   1.070  $   0.445  $        -    $   0.445 -58% 1-for-4 Rts @ $0.41
KT&T Mar 02  $   1.100  $   1.745  $   0.563  $   2.308 110%
Nera Tel Feb 12  $   0.450  $   0.735  $   0.140  $   0.875 94%
Nera Tel Nov 12  $   0.490  $   0.735  $   0.100  $   0.835 70%
Pertama Jun 11  $   0.650  $   0.650  $   0.086  $   0.736 13% Privatised at $0.65
SembMar Jun 02  $   1.100  $   4.030  $   1.670  $   5.700 418% 2-for-5 Bonus
STATS Mar 07  $   1.750  $   0.505  $   0.340  $   0.845 -52%
Vard Jan 13  $   1.220  $   1.005  $        -    $   1.005 -18%
Average




47%
Median




14%

Based on the above 16 cases of unsuccessful privatisations, dissenting shareholders stood to gain from 10 of them. The gain ranges from 13% to 418%. 5 of the unsuccessful privatisations resulted in losses for the dissenting shareholders. The loss ranges from -9% to -58%. One of the unsuccessful privatisation had no gain or loss for the dissenting shareholders. Overall, the average gain for dissenting shareholders is 47% and the median gain is 14%.

Of the above companies, 2 companies (namely China Minzhong and F&N) could have been privatised as their free float at the close of the takeover offer had fallen to below 10%. The majority shareholders decided to retain the companies' listing status and sold off shares to increase the free float to above 10%. This depressed the share price after the close of the takeover offer. If these 2 companies were excluded, the average and median gain for dissenting shareholders would be 55% and 21% respectively.

Based on the above information, it is tempting to conclude that shareholders are generally better off rejecting the privatisation offers. However, a closer look at the companies that have performed extremely well or poorly after their privatisation offers shows that it is ultimately the performance of the business that determines whether dissenting shareholders gain or lose by rejecting the offer. Shareholders should therefore review the prospects of the companies in deciding whether to accept or reject the privatisation offer.

If you are aware of any unsuccessful privatisation that is not listed in the table above, please let me know so that a more complete study could be carried out. Thanks.

P.S. I am vested in CapitaMalls Asia, which is the subject of a privatisation offer by Capitaland.


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