THE best privatisation deal of the year has to be Johor Corp Bhd’s (JCorp) RM2.2 billion exercise to privatise Kulim (M) Bhd. It was a win-win deal for JCorp as well as the minority shareholders.
What stood out was the generous offer price — JCorp offered RM4.10 a share to entitled minority shareholders for the 38.13% of shares it did not already own. That’s a 24% premium to Kulim’s closing price on Nov 4, the day before the offer was made.
To recap, the counter traded below RM3 throughout 2014 and most of 2015, even hitting a multiple-year low of RM2.46 in July 2015 before rallying 34% to RM3.30 when JCorp made the offer.
As Kulim’s volume-weighted average price was RM2.82 a share for the six months up to the offer date, JCorp’s takeover deal offered a whopping 45% premium to minorities — a superb exit after much uncertainty over Kulim’s business direction.
More than 99% of eligible shareholders voted in favour of the deal at Kulim’s extraordinary general meeting on May 3 this year. The stock was suspended effective June 20 and eventually delisted on Aug 4.
JCorp was not being generous for giggles, though. The investment arm of Johor stood to gain immensely from the exercise, despite giving the minorities a sizeable exit premium.
For one, Kulim had RM1.74 billion cash at the time the offer was made. This means JCorp paid only about RM460 million to take full control of Kulim’s assets, which, excluding cash, were valued at RM4.98 billion as at March 31, 2016.
Kulim was flush with cash after selling its 49% stake in New Britain Palm Oil Ltd (NBPOL) to Sime Darby Bhd for RM2.75 billion. From this, it announced a RM1 billion special dividend to be paid over two years.
JCorp received about RM300 million from the special dividend in March, which cut the actual cost of its exercise further to RM160 million.
Minus liabilities, Kulim’s net asset value, excluding cash, as at the same date, stood at RM3.49 billion, based on regulatory filings.
While Kulim’s last reported NAV per share was RM3.82, that figure could have been substantially higher in reality. It had 50,999ha of plantation land in Johor, some of which had not been revalued since 1997 and even 1987.
Also, exiting NBPOL meant Kulim lost a big portion of its plantation business and became reliant on its Malaysian oil palm estates and its majority stake in oil and gas outfit EA Technique Bhd.
A major NBPOL shareholder since 1996, Kulim wanted a majority stake but was rebuffed by the Papua New Guinea government in 2013.
In its offer document, JCorp noted that Kulim’s Malaysian palm estates were much smaller than those of some listed regional peers. Kulim also intended to venture into the oil and gas exploration sector in Indonesia, which would carry a longer gestation period — meaning the near-term outlook for Kulim was unexciting.
While it is arguable whether the oil and gas diversification was a wise move, it is apparent that the privatisation exercise allowed minority shareholders to cash out and avoid the risks attached to the venture. It was especially appealing, given the low crude oil price environment seen worldwide in recent years.
Of course, some have argued that since Kulim might be sitting on hidden gems vis-à-vis its land bank in Malaysia with outdated valuations — not to mention the possibility of a successful oil and gas play and improved output at its plantations — shareholders could have done well by rejecting the offer.
On the flip side, that position might take much longer to see value being unlocked, with risks attached to waiting. In comparison, a quick exit with a hefty premium was more inviting, and JCorp gained more manoeuvrability by taking full control of Kulim at a relatively low cost — a win-win situation.
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