KUALA LUMPUR (Jan 20): The Edge weekly in its latest edition decided to provide investors a guide as to how to buy out undervalued stocks.

In its “The Corporate Raider’s Guide to Privatisations”, the Edge’s Ben Shane Lim wrote buy low, sell high.

The weekly said this was the golden tenet of investing.

Thus, it said investors are always looking to identify undervalued companies with the intention of cashing in when the market starts to revalue the firms properly.

However, the magazine said the scales are not tipped in the favour of small investors. Well-heeled investors with access to large sums of capital are often in a better position to take advantage of undervalued companies by launching a bid to privatise them.

Unlike retail investors who have to rely on the market’s pricing of the company’s shares, big corporate raiders can often strike deals with controlling shareholders with or without the management. And once they seize control of the company, they can always strip the assets for a quick buck or ride the upside as the company’s prospects turn around.

“When you look to take a company private, you must have a plan. You can’t just buy it because it is cheap. Maybe you are going to strip the assets, maybe you are going to relist it down the road at a better valuation. Retail investors however, can only wait for the market to better value the company ... they are disadvantaged,” explains one veteran banker who declined to be identified.

Not surprisingly, it is rare for minorities to bag a good deal from a privatisation these days, and they should consider themselves lucky if they are offered a premium of 20% from the one-month volume weighted average price.

In fact, most general offers these days are certifiably “unfair”, as determined by independent advisers. Nonetheless, minorities often have little choice but to accept the lowball price, or risk being stuck with an illiquid stock, or even worse, in a suspended counter.

To be fair, no offeror can be expected to hand out high premiums to take a company private; they, too, wish to pay as little as possible to maximise their investments.

However, the balance of power heavily favours the offerors, who can twist and bend the terms of the offer to their advantage.

In brief, corporate raiders that intend to take a company private have several key advantages over ordinary investors, namely, information, power, capital, sophistication and time.

To know more in detail what these key advantanges entail, read a copy of the Edge for the week of Jan 22 – Jan 28 available at newsstands now.

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