Potential MGO could be rerating catalyst for Media Prima

This article first appeared in The Edge Financial Daily, on August 9, 2019.
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Media Prima Bhd
(Aug 8, 49 sen)
Maintain hold with an unchanged target price of 48 sen:
Bloomberg data showed a block of 50 million Media Prima Bhd shares, equivalent to 4.51% of the integrated media group’s share capital, crossed hands off-market in the afternoon session on Wednesday. However, Bloomberg does not append details of the buyer(s) and seller(s) in off-market transactions.

The deal was transacted at RM30 million, or 60 sen a share. Recall that on July 3 and 11, billionaire Tan Sri Syed Mokhtar Albukhary bought two blocks of Media Prima shares off-market at the said price per share. The previous off-market purchases were done by one of his indirectly-owned investment holding companies, Aurora Mulia Sdn Bhd.

If Aurora Mulia was indeed the buyer in Wednesday’s off-market transactions, its stake in Media Prima would be raised from 16.05% to 20.56%. Aurora Mulia is already Media Prima’s largest shareholder.

Here is where things could get interesting. The Edge Malaysia weekly and The Straits Times of Singapore have reported that Media Prima’s second-largest shareholder, Mitsubishi UFJ Financial Group Inc, is holding the shares on Syed Mokhtar’s behalf. If the reports are anything to go by, Syed Mokhtar would all in all own 33.39% of Media Prima, based on our estimates on the reported stake purchased by Syed Mokhtar. This is just enough to cross the 33% to 50% creeping threshold that would trigger a mandatory general offer (MGO).

Apart from landing on the creeping threshold, another way that would compel a shareholder to undertake an MGO is by emerging as a company’s controlling shareholder. The Securities Commission Malaysia’s (SC) Equity Guidelines define a controlling shareholder as “any person who is, or a group of persons who collectively are, entitled to exercise or control the exercise of more than 33% of the voting shares or voting rights in a corporation or who is or are in a position to control the composition of a majority of the board of directors of such corporation.”

At the time of writing, there has not been any change in Media Prima’s board. Theoretically, to make strategic changes to a company requires control of its board. Thus, this should satisfy the clause of being “in a position to control the composition of a majority of the board of directors of such corporation” to become a controlling shareholder, which should then trigger a MGO.

However, we caution that Syed Mokhtar may not have to take control of Media Prima’s board if the current directors are friendly towards him and agreeable to his propositions for the company’s direction going forward.

We maintain our “hold” call on Media Prima, premised on the possibility of Syed Mokhtar triggering an MGO. Based on the events transpired and the publicly available information so far, Syed Mokhtar could technically be compelled to undertake an MGO in the near future. This would be the rerating catalyst for Media Prima.

Downside risks to our call are: 1) Syed Mokhtar being granted a waiver for the MGO; 2) advertising expenditure regressing worse than expected; and 3) the injection of Syed Mokhtar’s loss-making media and telecommunications assets. — CGSCIMB Research, Aug 7