Wednesday, May 02, 2007


There are loads of plausible reasons for taking Maxis private. There are the cynical ones and the positive ones. My reason for writing this posting was I came to the conclusion that the deal, even at 41bn ringgit (RM16.20 a share) has a 60%-70% chance of failing. Now if that is true, why would the man still want to do such as exercise? Some thoughts.

a) Maxis Undervalued (India) - Given, that is a given, esp their Indian and Indonesia stakes. Aircel's monthly new net additional subscribers surged an impressive 23% in 1Q2007 from 4Q2006 data - subscriber growth trend is healthy and spiking higher: in line to go past 8m subscribers by year end, if not earlier.
b) Maxis Undervalued (Indonesia) - Maxis also just bought out another 44% from their Indonesian partners Lippo Group for US$123.92m, a first step to bringing in a new "partner" into NTS. Tariffs in Indonesia is the highest in the region and almost 4x that of Malaysia. The downside is that NTS still has to contend with the 3 incumbents and its own limited coverage status. Looking at the positive angle, full Maxis mgmt control could signal the start of better prospects in Indonesia.
c) Maxis Undervalued (Sri Lanka) - Maxis is likely to acquire NTT's 35% stake in Sri Lanka Telecom (which controls Mobitel, holder of a 16% mkt share in mobile mkt in the country).
d) Much Lower Capital Expenses In Malaysia - Since Maxis is not going into new areas aggressively, and is printing money (free cash flow of RM1.2-1.3bn a year and rising), its own balance sheet is sufficient to fund the expansion into India, Indonesia and Sri Lanka. In particular, when mgmt feels that the market is not valuing its stakes in the 3 countries properly.
e) Privatise & List Again - Assuming the 41bn is correct, thats a 20% premium already. If you privatise and then list again, say in HK or Singapore, the additional valuation may yield better results but not sufficiently high enough to justify the exercise.
f) High Probability Of Failing - However, all that rests on the privatisation exercise succeeding. Big and small funds have been buying Maxis on their regional exposure and cash cow status in Malaysia. Maxis is a very decent regional play on telco penetration into Asia ex-China & Japan. Hence, there is a huge likelihood of some funds holding back approval. The Capital Group is a huge holder of Maxis shares. I doubt they'd think this is the best way to go.
g) Why Do An Uncertain Exercise? - If the deal does not have a good chance of success, why do it? The cynics would scoff and say that its to raise the share price valuation of Maxis and also Astro, Tanjong and Measat. Cos thats what will happen whether the privatisation succeeds or not. All companies in the man's stable will trade higher because of the visibility of the exercise and the intentions behind them. That is a mean statement, and Ananda is way above that to try and do something so under-handed just to prop up valuations. Plus, he is not selling, so it doesn't bother him whether his net worth is RM10bn or RM13bn.
h) Remember Bumi Armada - For the long history of excellence of the man, it was blotted considerably by the privatisation of Bumi Armada, and the nonchalant relisting of Bumi Armada. Minority shareholders were whacked before, during and after the whole exercise. So not his style, wonder who was behind it, but mention Bumi Armada, it leaves a very bitter taste esp if you had some of the shares. (Go to Where Is The Moola blog, he has an extensive and well researched point by point whacking on Bumi Armada's exercise). Due to the BA experience, fund managers will not be easily tempted to say "yours" at RM16.00 even.
i) PE Firms - Big private equity firms would do Maxis in the blink of an eye. No other sizable, good mgmt company with very decent regional exposure in telco side, coupled with excellent balance sheet. But if PE firms are involved, RM16 may not be the only buyout px. They could go as high as RM20 if they see value in the region of RM25 (as whispered by some optimistic fund managers) - which is why I believe RM16 is way way not likely to result in a proper successful deal.
j) Why Keep It Listed - The rule is if you have the money, where there is a willing buyer and seller, taking companies private is OK. However, some minority shareholders will want the counter to be listed: their argument being that they took big risks buying shares during the company's infancy period. Now that it is printing money, they want to take it off the table. The crux being that the main buyer is offering a premium to market. The long suffering shareholder may be willing to hold longer for dividends and longer term gains. Its a difficult balance to strike.

In the event of the deal being not successful, all shares in the group stable would have a higher base price anyway, is that the only thing the man wants? Seems too shallow for that. If anything, its more plausible to take Tanjong private. If I was a fund manager holding a sizable stake in Maxis, this is what I would demand from the man:
"Not at RM16, even though thats a nice premium. Better to gather all the foreign holdings into a SPV (call it Maxis International)and list them in Singapore. Keep Maxis listed but distribute the IPO shares in SPV to all Maxis shareholders as bonus. SPV will take care of future capital needs, and Maxis would then be able to distribute full RM1bn in dividends yearly instead of half that". This way, Maxis stay listed, better valuations for Maxis International, shareholders make tons on MI and doubling of dividends, everyone ends up richer. This way Maxis also allows minority shareholders to continue to participate in the growth and success of Maxis of the future. Don't just invite Malaysians to play when risks are high, and take good toys away from the kids.

p/s Whether the share px trades below or above the offer px is not a true indication of potential success of the deal. Generally, if it trades above, investors are betting on a higher offer later on. If its lower, generally investors are selling first (with discount) as that might be the best thing to happen for the stock. However, all we need is an aggregation of a few fund managers to block the deal at the approval meeting to crush the deal.

Posting on Bumi Armada

Posting on Privatisation


Moola said...


Highly disappointed with what's happening here!


Salvatore_Dali said...

moola, can u also post the link to yr bumi armada article as well, ty.

Moola said...


I edited that posting and included all the older links.


cin said...


What wud be the fate of the minority shareholder if RB Land were piratized?

Salvatore_Dali said...


though there could be some resemblance, but its privatised not piratised ... ; )
If its RB Land as long as its close to NTA, nobody would shout much because IJM has not done anything in RB Land, its all untapped potential, and its close to NTA, being a property company, thats as good as it gets ... very rarely do property companies get bought out at big premiums above RNAV... so its apples and oranges here.

cin said...


Your advice not to compare oranges with apples are well taken.

Haven't you heard all the cries about "piratizaion"? or do you think IJM is of a different cattle?

P/S - That's a very chic way to wear your ties!

Smithveg said...

AK. Swt"

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