Goldis' proposed takeover price for IGB is seen as grossly unattractive

PETALING JAYA: The Tan family’s attempt to tighten their grip on the crown jewel parked under IGB Corp Bhd will likely be met with resistance from minority shareholders, as the takeover offer made through Goldis Bhd has been deemed as unattractive by most market players.

Goldis’ offer of RM2.88 cash per IGB share is said to substantially undervalue the assets of the property development and investment company.

At least one research house has described the offer as unfair and unreasonable, while an analyst opined that Goldis’ price was not a “serious offer”.

“The offer made by Goldis for IGB’s shares does not make sense at all,” an analyst with a local bank told StarBiz.

“Minority shareholders are unlikely to accept the offer, given the low premium. If they wanted to cash out, then they might as well dispose of their shares on the open market and get cash now, rather than wait for another few weeks when the offer closes to cash out,” he explained.

Goldis’ offer represented a premium of only four sen, or 1.41%, over the pre-suspension price of IGB shares of RM2.84.

IGB shares yesterday gained four sen to close at RM2.88 upon the resumption of trading.

Goldis shares, on the other hand, fell nine sen to close at RM2.30.

IGB, in an announcement yesterday, said the board would not seek an alternative offer and had appointed an investment bank as the independent adviser.

“The shareholders of IGB are advised not to take any action until receipt of the independent advice circular,” IGB said.

The statement also stated that the decision was made by disinterested directors of the board, meaning without the members of the Tan family participating in the deliberations.

Both counters were suspended last Friday, pending the announcement of Goldis’ takeover offer for IGB.

Prior to their suspension, IGB shares were last traded at RM2.84, and Goldis at RM2.39.

“We view Goldis’ proposal as not a serious offer, as we believe the Tan family is only interested in buying out some minority shareholders to consolidate their holdings in IGB, which happens to be their crown jewel,” a banker noted.

“We believe Goldis’ conditional takeover offer for IGB will naturally lapse, without much success,” he said.

In its announcement last Friday, Goldis said it directly owned a 30.66% stake in IGB as at July 17, while persons acting in concert with it in the takeover offer collectively had 20.49%, thus raising the offerors’ shareholding in IGB to 51.15%.

Goldis explained that the rationale for the proposed exercise was to increase its direct stake in IGB to more than 50%. It has said that it intends to keep IGB as a listed entity.

Both Goldis and IGB are controlled by the family of the group’s co-founders, namely Datuk Tan Chin Nam and his late brother Tan Kim Yeow. Chin Nam is the family’s patriach.

His daughter Tan Lei Cheng currently helms Goldis as the company’s executive chairman and chief executive officer, while Kim Yeow’s son Datuk Robert Tan Chung Meng leads IGB as its group managing director.

Lei Cheng, Chung Meng and their siblings are substantial shareholders in both Goldis and IGB. They own substantial stakes in both companies directly and through various private vehicles.

IGB owns a 51.4% stake in IGB Real Estate Investment Trust (Reit), which wholly owns the Mid Valley Megamall and The Gardens Mall.

Both the malls, which are the jewels of the group, are considered among the most successful in Malaysia, with an occupancy rate of 98% as at December 2013. The exercise was seen as bringing closer the two malls to Goldis where the family has the majority stake.

PublicInvest Research in its report yesterday had described Goldis’ takeover offer for IGB as unattractive, as the deal was substantially undervaluing the assets of IGB.

The research house had consequently downgraded its rating on IGB to “neutral”, with a target price of RM2.88, from its earlier assessment of “outperform”, with a target price of RM4.10.

PublicInvest Research said it had estimated IGB’s assets to be worth at least RM8bil, or RM5.85 per share, which it said was already a conservative valuation.

The broker pointed out that Goldis’ offer valued IGB’s equity at RM3.84bil, which was only 48% the estimated revalued net asset value of RM8bil of IGB.

PublicInvest Research pointed out that it had yet to impute value coming from future assets such as MidValley SouthKey (1.8 milllion sq ft net lettable area), Southpoint (900,000 sq ft of net lettable area), IGB International School, and a few hotels and development projects that have a potential RM10bil in gross development value.

“The offer price, which among other things, derived from the reported book value of RM4.42bil or RM3.25 is unfair and unreasonable in our view, as most assets in IGB are still valued at book value.

Its 51.4% stake in IGB Reit is already worth RM2.2bil and it has a net cash position of RM700mil at holding level,” PublicInvest said, adding that IGB shares’ upside would be capped, pending the progress of the takeover offer from Goldis.

According to PublicInvest Research, at RM2.88, Goldis would have to fork out around RM2.67bil to buy out IGB.

“This is perplexing as Goldis has only around RM100mil cash, and will need to raise around RM2bil, which is still a huge amount considering its current capitalisation of RM1.45bil,” the brokerage pointed out.

It, however, believes the deal is good for Goldis.

“The effective RM2bil is even lower than the market value of IGB’s 51.4% stake in IGB Reit that is worth around RM2.2bil.

In other words, Goldis is paying IGB for its IGB Reit stake at a discount and getting everything else for free,” PublicInvest Research explained.

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