Big Money: IOIP privatisation almost in the bag

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Could IOI Corp Bhd’s plan to privatise its subsidiary, IOI Properties Bhd (IOIP), have hit a snag? Going by the fact that the company has extended the deadline for IOIP minority shareholders to accept its voluntary takeover offer (VTO) to March 31 from March 17, some may perceive it that way. Hence the speculation that IOI will have to sweeten the offer at the eleventh hour. But take a closer look and one will come to the view that the privatisation exercise is unlikely to fall through and that the deal isn’t at the mercy of minorities who do not want to accept the offer.

Some critics say an acceptance of less than 90% for the VTO would reflect minorities’ dissatisfaction with the offer that was made in February. And they add that IOI Corp, which holds 76% equity interest in IOIP, will have to raise its offer price to persuade stubborn shareholders to accept the deal.

But IOI Corp has obtained 89.68% acceptance, just 0.32% short of the required 90% level that would allow it to delist its property arm.

The deadline extension is seen as a strategy to buy time for the company to win more acceptance from the remaining minority shareholders, now that it is so close to its objective.

To recap, IOI Corp had offered to pay RM2.598 per share to acquire all the shares it does not own in IOIP via a share swap plus cash payment. Under the offer, every 100 shares held in IOIP will be exchanged for 60 shares in IOI Corp at an issue price of RM3.78 per share and RM33 cash.

The offer price of RM2.598 is at a 17% premium to its last traded price of RM2.22 prior to the announcement on Feb 4. However, the offer price is at a substantial 34% discount to IOIP’s net tangible value of RM3.95 per share. This is a major point of contention.

A day before the closing date, the Minority Shareholders Watchdog Group (MSWG) was quoted in an English daily as saying that a group of minorities intended to hold out on the offer as, in their opinion, the privatisation exercise wasn’t fair to them, and that IOI Corp should make a better offer.

IOI Corp responded swiftly to the report and said it would not raise the offer price when it announced the extension of the closing date for the VTO to March 31.

In a press release, IOI Corp stressed that it “does not intend to extend the closing date beyond March 31, and it does not intend to revise the offer price”. So, what the group is saying loud and clear is that minorities should not pin any hopes on an upward revision of the RM2.598 offer.

But is there really nothing else the minorities can do?IOI Corp boss Tan Sri Lee Shin Cheng may well call it a done deal if asked about the status of the privatisation exercise as all the group needs is just one or two institutional investors that hold 0.5% equity interest to accept the offer. It is learnt that the deadline was extended mainly because one minority shareholder that holds a substantial block, had asked for more time to submit the documents, as it needs to obtain an official mandate for the acceptance of the VTO.IOI Corp should thus have no problem in meeting the minimum shareholding requirement for the privatisation. Among IOIP’s institutional investors are Valuecap with a 3.48% stake, Amanah Saham Bumiputra with 2.2% and the Employees Provident Fund with 1.73%.

And even if IOI Corp fails to obtain the required 90%, it has already said it would undertake the requisite steps to formulate a plan to delist IOIP from Bursa and would not make any effort to address the shortfall in the public spread.“IOI intends to procure IOIP to make the necessary application to withdraw its listing from Bursa Securities,” IOI Corp had said in a statement to the exchange.

It is clear that IOI Corp will succeed in privatising IOIP. But the plantation group will not be able to wholly own IOIP should some minority shareholders reject the offer and hold on to their shares. It will then have to live with this small group of minorities, who will then hold shares in an unlisted public company. But that may not necessarily be bad for IOI Corp.This is certainly unlike the privatisation of Malaysia Oxygen Bhd, in which the offerer had to raise the offer to RM17 a share from RM15 after a group of minorities held out.

The IOIP minorities’ main complaint is that IOI Corp should also make a full cash offer, like Wilmar International Ltd did when it privatised PPB Oil Palm Bhd in December 2006. Wilmar offered a full cash offer and the alternative of a share swap on the basis of one PPB Oil Palm share for 2.3 Wilmar shares, which is listed in Singapore.

While the privatisation offer for PPB Oil Palm went down well with the minority shareholders, it drew criticism over the restructuring exercise, which involved the listing of core assets outside the country.

Besides the full cash offer, another contributing factor for the success of Wilmar’s takeover offer was that it was made when the plantation stock was climbing. Hence, the premium paid on the already high share price looked even more attractive to minorities, who, of course, would never have imagined at the time that crude palm oil prices would soar above RM4,000 per tone some two years later.

IOI Corp, however, will probably argue that holding its shares is as good as cash, given the company’s track record and the good performance of its share price.

This article appeared in The Edge Malaysia, Issue 747, March 23-29, 2009.