Wednesday, February 17, 2010
KNM's Privatisation? Fairytale Time by The Aesop & Madoff Brothers Grimm
Readers will know that I do not have a bullish view on KNM as I have always not felt comfortable with their figures. Then, out of the blue, BlueFire Capital Group Ltd (Bidco), an entity controlled by Ir Lee Swee Eng (KNM’s Group Managing Director and major shareholder), in collaboration with GS Capital Partners VI Fund L.P. and Mettiz Capital Limited, proposed to acquire the entire business and undertakings of the company, paying an equivalent of RM0.90 per share. This represented a 20% premium over KNM’s share price at that point in time, and 1.8x estimated BVPS as at end-2009.
Here is the funny thing, if somebody is buying at 90 sen, why is the share price still struggling to breach the 80 sen level? Some may say that a number of minority shareholders will not be keen to sell at 90 sen as they see the sector recovering, and maybe they have entered at much higher prices. The next biggest shareholder is EPF with 12.2% - if EPF no like the deal, they no sell now or at 90 sen, ... if EPF likee deal, they sell at 90 sen ... so who is selling now???
My question is, since when are shareholders being asked to state their views on where the sector or company's prospects are headed? You buy, you sell, you keep your mouth shut, ... holding the shares only gives you the right to SELL at 90 sen or don't sell. No matter what your views are, 90 sen is a good price to SELL unless you can find somebody willing to buy at higher prices NOW. People who say that the company is worth a lot more in the future, well, ... so is my ass but nobody is going to write a put option on my ass 5 years down the road. Its JUST YOUR VIEW, and we can probably find similar OPPOSING VIEWS ON YOUR BULLISHNESS. That's the case for minority shareholders. Now got a bone to pick with the consortium. Who the fuck are selling at 80-82 sen when the privatisation is at 90 sen? Why don't you people just go into the marketplace and buy all share right up to 88 sen or 89 sen at least (because you cannot really be buying above 90 sen in the open market, or else you have to up your G.O. to your higher purchase price after announcing the offer).
KNM’s Board has granted Bidco a limited exclusivity of up to 22 Mar 2010 to complete a due diligence and satisfy the other conditions of the proposal. While Lee and parties have to fork out RM3.6b immediate cash for the acquisition, he should be able to recover RM738b based on his 20.5% stake in KNM, which could undertake a subsequent capital repayment exercise. Goldman Sachs has been appointed the international advisor. So, maybe the consortium is waiting to act AFTER the due diligence? But you have Mr. Lee in there, don't you?
Hence, the share price is nowhere near 90 sen may be due to any or all or none of the following:
- a lot more sellers than buyers (this useless statement can be appropriately used here to great effect); i.e. a lot more people believing the G.O. may not carry through than those who think they will. This is still an OK development provided the sellers are not "interested parties" to the deal
- they may not get the funding
- the due diligence may be troublesome
- seriously, the funds are not in yet, where got money to buy shares now
There is usually a discount to the G.O. as many may not want to wait for the exercise to be completed to get back their monies, but its usually 2%-3%, not more than 10%. There are numerous stories in the marketplace, that this privatisation is a prelude to a merger with a big private oil & gas company .. and potentially later to relist with better valuations and size. If the consortium has an end buyer after the privatisation, it will be at a price higher than 90 sen, say maybe RM1.20. Seriously folks, if I was the big private O&G owner, would I NOT BE AT LEAST BUYING KNM shares now at way below 90 sen???
Anyway, caveat emptor or to translate the Latin into my everyday English: watch out for the guy who pats you on the back, he could be a friend or he could be asking you to cough up blood
Nightmares & Fairytales Time by The Aesop & Madoff Brothers Grimm: You know what I am afraid of, I am afraid of fairytales, scary financial fairytales ... Let me tell you a story, there was once this company that did a G.O. ... but the share price never rose close to the offered price ... (because somebody has been naughty and selling shares in the open market, naughty boy) ... and true enough, following the due diligence exercise a few weeks later, the G.O. was called off. The share price collapsed further, but guess who managed to offload shares during that period... and guess who can now buy back the shares at 40% or even 50% cheaper. Thats the fabled nightmare ... can you sleep soundly at night?
p/s photos: Carrie Lee
Further announcement to the Companys reply to Bursa Malaysia Securities Berhad's queries dated 5 February 2010 on the Companys announcement dated 4 February 2010 and entitled Proposed Acquisition of the Entire Business and Undertakings of the Company. With reference to KNM Group Berhads (KNM) reply dated 8 February 2010 (reference number: KG-100208-750E6) to Bursa Securities Malaysia Berhads queries, the Company wishes to further clarify the following:-
Question 5 :
The information on GS Capital Partners VI Fund LP and Mettiz Capital Limited together with its role in the Proposed Acquisition
Mettiz Capital Limited (Mettiz) (company no. 1412549) was incorporated on 21 June 2007 in the British Virgin Islands, with its registered address at Nerine Chambers, P.O. Box 905, Road Town, Tortola, British Virgin Islands. Mettiz is a special purpose private investment holding company that is beneficially owned by Mr Michael Tang Vee Mun, a Malaysian citizen.
Question 7 :
Whether Bidco has expressed its intention on the listing status of the Company
Bidcos proposal is to acquire the assets and undertakings of KNM, which matter is still subject to due diligence and not proposing to acquire the shares of KNM. Therefore, neither Bidco nor the Board of KNM has expressed any intention on the listing status of KNM.
This announcement is dated 9 February 2010.