Short Position

People look at the exchange rate at a moneychanger displaying a poster of U.S. dollar bill, Chinese Yuan and Malaysia Ringgit in Singapore in this August 24, 2015 file photo. REUTERS/Edgar Su/Files

Is the game over at The Store?

RIGHT from the beginning, it did not seem like a simple corporate exercise for the major shareholders of The Store Corp Bhd to take the company private.

The major shareholders offered RM3.52 per share for the company that owns and operates a chain of supermarkets. It was almost 50% lower than the net asset per share of RM6.83.

Apart from a jarring difference between the net asset per share and the offer on the table, The Store is also a thinly traded stock with a small number of shares in circulation. It has only 68.5 million shares out of which the free float is estimated at less than 16 million.

For such a thinly traded stock, taking it private is usually more difficult because the shares are hard to come by. Those holding the shares are for the long term and generally would not be in a position to dispose it for a quick gain.

Against such a backdrop, the strategy to take it private has to be good and well-crafted because all it takes is for a small group of investors to mop up some 15% of the stock, which would cost them RM36mil, to derail any privatisation efforts.

Alternatively, another way is for the major shareholder to put a good price on the table that all shareholders cannot refuse.

This is what the major shareholders of The Store have done. Last Friday, it improved on the offer to push it up to RM3.70 per share.

The major shareholders and parties acting in concert hold some 42.05% of The Store. They need to gain acceptance to the level of at least 50% for the offer to be unconditional.

With the revised offer, the major shareholders could possibly achieve an acceptance that will push their shareholding to more than 50%.

However, to take it private, it needs an acceptance level of more than 90%. This is where the challenge lies. If the price of the stock hits above RM3.70, then the indications are that the game is not over yet.

There is a saying in the stock market – one should set a target price to buy and sell investments. And one should not waver and chase up a stock if the price has moved above what the fair value is.

In this respect, Kuala Lumpur Kepong Bhd’s (KLK) failure to take over UK-listed plantation group MP Evans Group Plc shows the discipline of the Malaysian plantation company.

KLK’s wise move 

KLK has the balance sheet strength to raise the offer of 740 pence per share. But the Ipoh-based plantation company did not. It probably felt that to increase the price further would not justify the valuations and, hence, has stood by its offer.

At the close of the offer, KLK received acceptance of only 13.2% of shareholders, far short of the 50% required to make the offer unconditional.

The offer to take over MP Evans would have cost the Malaysian company some £415.4mil (RM2.3bil). At a time when the ringgit is coming under pressure, KLK’s strategy to hold back is the right thing to do.

However, KLK is not completely out of the game to take over MP Evans in the future.

According to the announcement, should there be a firm offer from a third party for MP Evans, KLK has the right to make another attempt for the London-listed plantation company. Going back to the track record of mergers and acquisitions, it would probably be a matter of time before MP Evans gets another offer for its shares.

Perhaps, KLK would make another go for the company then?

Numbing the dollar impact

IN 2010, Malaysia and China agreed on a ringgit-yuan settlement programme. The reason was simple. Trade between both countries had been growing over the years and had reached a point where China was Malaysia’s top trading partner.

One other reason was to bypass the use of the US dollar as the intermediary currency between both countries. The idea was that there was no need for Malaysian exporters and importers to use the dollar when buying goods from China.

Yesterday, Bank Negara inked a deal with Thailand and Indonesia for the same purpose. As intra-Asean trade grows, the usage of domestic currencies should eliminate the practice of using a third currency to square off trade positions between the respective countries.

The settlement of trade and investments between the three countries should not only directly benefit each country, but also minimise the use of US dollars when executing such transactions between the countries.

If the idea is to reduce the use of the dollar when conducting trade and investment between the countries, then the idea will have a foundation that is sound. But if the premise is to stem the impact of the dollar on the local currencies of each country, then it might be some way to go before the dollar loses its influence on international trade, or even with trade between each country.

The settlement programme between Malaysia and China has had little influence, on the surface at least, when it comes to tackling the influence of the dollar on the respective currencies of each country.

The same can be expected when it comes to trade and investment flows involving the currencies of Malaysia, Thailand and Indonesia. As it stands, the strong dollar shows no effect versus the currencies of many countries around the world as it continues to march upwards.

The statistics may not be apparent, but one wonders what would have been the impact of the ringgit against the dollar in the absence of settlement agreements between countries such as China and in the future, Indonesia and Thailand.

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