KUALA LUMPUR (Jan 25): CGS-CIMB is in favour of FGV Holdings Bhd’s shareholders accepting the takeover offer by the Federal Land Development Authority (Felda).
It said in the past, the share price of the plantation company was boosted by media reports of a potential takeover offer by Tan Sri Syed Mokhtar Albukhary, which led to the expectation that the stock could re-rate closer to its fair value back then.
“However, following recent developments and Felda’s more than 50% control over FGV, a competing offer for FGV is unlikely.
“FGV’s free float will also fall post the takeover offer. As such, we favour accepting the offer given the limited upside at the current price level and risks considered,” it said in a research note today.
On Jan 22, independent adviser RHB Investment Bank said the offer of RM1.30 per share was “not fair but reasonable” but recommended that FGV shareholders accept the offer.
However, FGV’s non-interested directors advised shareholders to reject the offer. They pointed out, among others, that the offer price was below the initial public offering (IPO) price of RM4.55 per share and the quality of FGV’s plantation assets had improved significantly since the IPO.
They also said keeping it as a public listed company would ensure the transparency and timely disclosures of FGV, being one of the world’s largest plantation companies in terms of crude palm oil production.
Felda does not intend to maintain the listing status of FGV on Bursa Malaysia’s Main Market.
In its note today, CGS-CIMB said the conflicting advice provided could be the result of different expectations on FGV’s share price performance after the offer period ends.
The brokerage firm said FGV’s independent directors may believe the share price would rise with better crude palm oil (CPO) prices and improved estates' age profiles.
“We concur that this could be the case should the overhanging issue relating to terminating the land lease agreement (LLA) is put to bed.
“However, if this issue is not addressed, investors will likely continue pricing the stock at a discount to its sum-of-parts (SOP),” it added.
RHB Investment Bank said the proposal was not fair because the RM1.30 offered was lower and represented a discount of 8.5% to 18.8% over the range of estimated value per FGV share derived using a SOP valuation method of between RM1.42 and RM1.60.
CGS-CIMB retained its “hold” call on FGV and target price of RM1.30 to reflect the takeover offer price.