In its third attempt to de-layer the group, the Tan family has one more month to woo shareholders involved in the corporate proposal to take IGB private
IT IS no secret that Goldis Bhd, the property investment company controlled by the well-heeled Tan family – the owners of one of Kuala Lumpur’s most famous landmarks, Mid Valley Megamall – has long wanted to de-layer the group.
Currently, the jewel of the group is found at Goldis’ subsidiaries, IGB Corp Bhd and IGB Reit, but the family’s interest is mainly concentrated at Goldis.
Because of that, clearly a de-layering or a simplification of its corporate structure is something that would work well for all shareholders of Goldis.
And that is why Goldis had again in February made an offer to take over IGB after a couple of failed attempts in the last four years.
Goldis now has to work hard to get the “buy-in” from IGB shareholders.
On Thursday, IGB announced that Goldis had allowed its board to take another month to consider Goldis’ latest offer to take over the company.
This will be Goldis’ third attempt in recent years to tighten its grip on IGB – and likely to be the most intense of all, with hard negotiations going on behind the scenes.
The extension in time announced on Thursday suggests that the IGB board needs more time to weigh the offer and ensure it goes down well with all of its shareholders.
“Putting up the offer to shareholders only to see it turned down is something that any board would not want to see,” says an investment banker.
Members of the Tan family, led by nonagenarian Datuk Tan Chin Nam, are the controlling shareholders of Goldis, which hold 73.43% in IGB. Consequently, the Tans are not eligible to vote on the proposed takeover deal because they are a related party to it.
The ones who can vote at IGB hold a collective stake of 26.57%.
Among these shareholders are the Employees Provident Fund (EPF), which is the single largest shareholder with a 5.14% stake, Singapore’s GIC Ltd, Somerset Capital Management LLP, as well as Public Mutual Bhd.
Although these hold relatively small individual stakes, they are the ones who can make or break the deal.
“At this point, these funds may be holding out for a better deal,” says an observer who is familiar with the takeover offer.
IGB has until April 28 to evaluate the proposed scheme and decide if it wants to recommend it to its shareholders.
Difference in the new offer
At the board of directors level, out of 10 board members at IGB, only four are eligible to deliberate on this takeover offer.
In order for the deal to go through, the deal requires a 75% shareholder approval out of the 26.57% shareholders that are eligible to vote.
“With its 5.14% stake, the EPF alone can help determine the direction of the deal,” says the observer.
After a takeover offer of IGB by Goldis fizzled out some three years ago, it is understandable why the board is a little cautious before making its recommendation.
Like before, this new offer at RM3 per share comes at a steep discount to the revalued net asset value (RNAV) of IGB, which stands at RM6.36.
However, this time around, the offer differs a little.
n the latest offer, Goldis says the takeover can be satisfied in either cash or a combination of cash and shares in Goldis.
“Unlike previously, Goldis has given minority shareholders an option of getting Goldis shares, as well as throwing in a cash option. This looks like the Tan family’s most serious effort yet to delayer the group,” notes the observer.
Based on 354.7 million shares held by the minorities, Goldis will fork out up to RM1.1bil or about two-thirds of its market capitalisation to buy out the shares of IGB that it does not own.
Goldis will be able to finance the cash component via borrowings.
In the case of the takeover offer made in July 2014, which was proposed at RM2.88 per share, there was no option of obtaining Goldis shares.
Funds apparently did not favour the idea of just selling out and taking the cash then, as they believed that there was still much value to be extracted from IGB, contributing to the failure of the deal.
IGB has prized assets such as Mid Valley City, which comprises 2.7 million sq ft of retail mall space, 3.2 million sq ft of prime office space in Kuala Lumpur and over 5,500 hotel rooms across the globe, according to a note by AllianceDBS Research.
IGB also owns a 52.3% stake in IGB Reit, which, in turn, owns Mid Valley Megamall and The Gardens Mall.
IGB’s balance sheet has also gotten an additional boost with the sale of its Renaissance Kuala Lumpur Hotel for RM765mil completed earlier this year.
The gain of RM85mil from this exercise is expected to boost IGB’s overall net profit for its financial year ending Dec 31, 2017 by close to 40%, according to analyst estimates.
Differing views from analysts
While this latest offer price of RM3 per IGB share still undervalues the company, it has provided an option for minority shareholders, catering to their varying investment goals, points out an analyst.
Those who want to sell out can opt for the 100% cash offer, while the option of cash and shares would allow some shareholders to participate in the long-term prospects of the merged entity, if they wish to do so.
However, the niggling issue is putting a figure on the fair value of the share swap between Goldis and IGB. Analysts have differing opinions – something that is quite rare when it comes to large corporate exercises.
AllianceDBS analysts describe the offer as a win-win proposal for the shareholders of both Goldis and IGB because the proposed scheme offers three options for IGB shareholders, catering to investors with varying investment goals.
“Ultimately, Goldis offers better value than IGB, and the streamlining of both entities will further eliminate holding company discounts.
“Yield-seeking and value investors could be better off swapping their IGB shares into Goldis securities, which are priced at a higher discount of 59%-63% compared to a 53% discount to IGB’s intrinsic value,” it says in its recent report.
It also says the fair value for Goldis should be RM4 per share.
“Goldis is grossly undervalued, trading at a steep 65% discount to our conservative RNAV of RM8.04.”
The research house says Goldis is poised for a “major re-rating upon the completion of the proposed Goldis-IGB merger via a scheme of arrangement, offering attractive risk-reward opportunity”.
It notes that Goldis has RM13.6bil worth of property development projects, which could be launched in the near term when the property market sentiment improves.
It has also been expanding its property development business beyond Malaysia in recent years with ventures in Thailand and London through joint-venture partnerships.
In contrast, PublicInvest Research is of the view that the offer severely undervalues IGB.
The research firm, which has an RM4.80 target price for IGB, believes there are other ways to unlock value in the company.
It says a glance at IGB’s assets reveals that its 51.1% in IGB Reit is already worth RM3bil.
Besides, the group also owns other hotels and offices worth more than RM3bil, based on PublicInvest’s estimates that can be easily monetised.
Goldis shares last traded at RM2.78.
At this price, the stock is trading at 0.77 times price-to-book value. IGB shares, meanwhile, closed at RM2.95 yesterday.
The latest move for IGB is Goldis’ third try at trying to gain greater control of the property developer.
In August 2014, Goldis failed to take over IGB, as the deal secured the approval of only 48.29% of shareholders which was below the 50% mark needed to make the offer unconditional.
A month prior to that, Goldis had launched a takeover offer for IGB at RM2.88 per share on the condition that it obtains at least 50% acceptance.
At that point, Goldis directly owned a 31.11% stake in IGB, with persons acting in concert (PAC) collectively having a 20.49% stake.
Collectively, it was thought that Goldis would be able to raise the group’s shareholding in IGB to 51.15%.
Nevertheless, on Aug 18, the last market day for acceptance of the proposed offer, the aggregate shareholding of the PACs was about 229.31 million IGB shares, or 17.18% of the company.
On July 17 which was the day Goldis first proposed the exercise, it had said that the rationale for the deal was to increase its direct stake in IGB to more than 50%.
As a result of the proposed exercise, Goldis would also be able to increase its consolidated net assets and net profit attributable to the company accordingly.
When the deal was first announced, observers said Goldis’ offer at RM2.88 cash per IGB share “substantially undervalued” the assets of the property development and investment company.
Hence, the market at that point had largely expected minority shareholders to reject the offer.
Goldis’ offer at that time represented a premium of four sen, or 1.41%, over the pre-suspension price of IGB shares of RM2.84.
Earlier in 2013, Goldis had also tried to tighten its control of IGB by proposing to inject Goldis’ 30.59% stake in IGB into private firm Steady Paramount Sdn Bhd.
The deal, which was later called off by the company, had given shareholders two options at that point, either to exchange their Goldis shares for shares in a private, unlisted firm or agreeing to accept cash of RM1.72 per Goldis share.
As the Tan family was allowed to vote on that proposed deal, it was envisaged that it would go through quite easily. The market was surprised when it was called off, following what the family referred to as “negative feedback” from shareholders.
The PNB factor
In reality, the Tan family’s efforts to tighten their grip on Goldis and their crown jewel IGB is hardly new, going back to more than a decade.
In 2002, IGB, which was then an associate company of Goldis, merged with another family business, Tan & Tan Development Bhd, and their combined property assets were placed under IGB, transforming it into one of the largest property players in the country.
Goldis then assumed the listing status of Tan & Tan and became IGB’s major shareholder.
At that point, the Tan family led by Chin Nam controlled close to one-third of Goldis.
Another substantial shareholder of Goldis then was Permodalan Nasional Bhd (PNB) with a 13.08% stake based on the company’s 2002 annual report.
The country’s largest fund-management company had held on to that stake for more than 10 years. By 2013, PNB had divested most of the stake to less than 3%, and a year later, it had sold off its stake completely.
Interestingly, around the same time, PNB had launched takeover offers – seen as hostile – for other property firms built from scratch by entrepreneurs, namely, S P Setia Bhd and Petaling Garden Bhd. PNB had strategic stakes in these companies prior.
Industry observers say that the moves made by PNB with regard to S P Setia and Petaling Garden had made the Tans uneasy, as they did not want the same thing to befall Goldis – the company Chin Nam founded.
Meanwhile, the next one month will reveal the outcome of the Tan family’s four-year corporate struggle to consolidate a business empire that they perhaps feel is not efficient in its current form.
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