Date: May 8, 2023
The Securities Investors Association (SIAS) calls upon minority shareholders of Global Palm Resources (GPR) to reject the privatisation offer of S$0.25 per share and for the offeror to revise the price upward.
Although the offer has been deemed “fair and reasonable’’ by the Independent Financial Adviser (IFA), SIAS does not agree for reasons that are presented below.
SIAS notes that are many ways to value companies and that no single method will be met with universal acceptance.
Offerors will always pitch their price as low as possible whilst shareholders will always wish for a price that is as high as possible.
The final settlement price must therefore lie somewhere in between – sufficiently fixed at a level so that there is adequate margin for offerors to extract value from their purchase, but also sufficiently high so that shareholders do not end up feeling short-changed.
As it stands now, S$0.25 does not at all satisfy these conditions, and neither can it remotely be described as being “fair and reasonable” to minorities for the following reasons:
- When comparing the offer to comparable companies, the IFA had set an arbitrary market cap limit of S$500m, thus arriving at only two “Comparable Companies’’ listed on SGX and excluding the market leaders that are listed on SGX. The IFA then included eight such companies that listed on the Indonesian Stock Exchange which is also an emerging market.
SIAS acknowledges this is a judgement call but urges shareholders to ask themselves whether it really is appropriate not to consider firms listed on the home market in favour of several in an overseas market when arriving at valuation metrics.
- When compared to recent going-private transactions on the SGX, the IFA listed 13 such transactions. While the GRP offer looks attractive when compared to the volume weighted average price due to its depressed trading price, it was the second lowest in terms of price-earnings ratio and substantially below the mean PER. The P/RNAV ratio is also 27% below the mean P/NAV (or RNAV where applicable).
- SIAS notes that GPR’s initial public offer (IPO) price was a 118% premium over the net asset value (NAV) at the time of listing, compared to the current offer, which is pitched at a 22% discount to the current revalued NAV of around S$0.32.
If the same premium was to be employed today, the offer price should be in the region of S$0.70.The question has to be asked: If the company could raise money from the public at a price that was a large premium to asset value, then why should it be allowed to buy everyone out now at a discount?
- The question asked in point 3) above takes on even greater relevance considering that, as at Dec 2022, GPR’s revenue has more than doubled from IPO, whilst earnings before interest, tax, depreciation and amortisation is roughly 50% higher. Furthermore, the company is in a net cash position.
In other words, given the growth enjoyed by GPR since listing and its good financial standing now, it is wholly unreasonable to offer to buy out shareholders at a discount to NAV, especially when a premium was applied at IPO. For reference, following a 2:1 share consolidation, the adjusted IPO is 92 cents.
Whilst SIAS therefore disagrees with the IFA that the S$0.25 is fair and reasonable, we agree with the IFA that “each transaction must be judged on its own commercial and financial merits’’.
Judged on its own, the present offer is clearly wholly unsatisfactory.
SIAS notes that offeror is a newly created vehicle owned by members of the Adijanto family and the offeror has obtained its irrevocable undertaking from the Adijanto Family Group for 82.98% of the issued shares. Given that the compulsory acquisition “loophole” has not been closed, the offeror intends to exercise its right to compulsorily acquire all the shares if it owns or controls 90% or more of the issued shares.
The IFA findings appear to fall short of the minimum expectation of shareholders for a truly fair and reasonable offer worthy of acceptance.
SIAS, therefore, urges the offeror to table a higher price. In the meantime, minorities should reject it.
David Gerald
President and CEO
SIAS
