Frankly Speaking: Is the dilution worth it?

This article first appeared in The Edge Malaysia Weekly, on February 17, 2020 - February 23, 2020.
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The recent offer by Datuk Tony Tiah to merge stockbroking arm TA Enterprise (TAE) with property arm TA Global in a cash and share-swap takeover deal will result in a dilution of shareholding for minorities in TAE.

To finance the cash offer, TAE will issue 550.54 million shares to its founder and controlling shareholder, Tiah, at 66.5 sen each.

Tiah currently holds 717.6 million TAE shares, or a 41.92% stake.

Assuming that Tiah’s holdings in TAE cross the 50% threshold after the issuance of the new shares, he would be required to make a mandatory general offer (MGO) for the remaining TAE shares he does not own.

The offer price, should an MGO be triggered, will be at least 66.5 sen, being the highest price paid by Tiah to acquire TAE shares within the six-month period prior to the announcement.

The price of 66.5 sen is a 54.7% discount to its net asset per share of RM1.47 as at Sept 30, 2019.

According to the announcement, after completion of the proposed voluntary general offer for TA Global and the subscription exercises, TAE’s net asset per share will be RM1.17 (minimum scenario) while gearing will improve to 0.63 times versus 0.79 times as at Dec 31, 2018.

Earnings per share is expected to increase to 5.37 sen versus 4.49 sen.

However, some question the need for the injection of funds by Tiah in exchange for stock.

In its announcement, TAE notes that the subscription of new shares will put the company in a better financial position without incurring any interest and significant cash outflow.

But given the dilution, minorities will have to weigh the pros and cons of the exercise and ask if it is worth it.

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