30 April 2012
Esso minorities not receptive to Petron's offer, only less than 10% of the balance shares held by minority shareholders had accepted the takeover offer
(ESSO opening stock price today (30.4.2012) was RM 3.57)
ONE of the more interesting buyouts of public listed companies in recent times is the deal involving Philippines-based Petron Corp and Esso Malaysia Bhd (EMB).
A noteworthy development surfaced two weeks ago when independent adviser Kenanga Investment Bank Bhd advised minority shareholders to reject the offer by Petron, so that they may benefit from the positive prospects of EMB in the future.
In the same circular, the independent directors of EMB also concurred with Kenanga which said that the offer price of RM3.59 per share was not attractive following a few methods of financial evaluation, hence advising shareholders to reject the offer.
This raises a few questions: Will Petron's intention to privatise EMB fail if minority shareholders cling tightly to their shares, and will we see a sweeter deal for the minority shareholders?
To recap, Petron, a unit of conglomerate San Miguel Corporation, triggered a mandatory general offer to acquire the remaining 35% shares in EMB at RM3.59 each after the completion of ExxonMobil's disposal of its 65% stake to Petron. The company had also expressed its intention to privatise EMB post-acquisition.
In a deal valued at US$610mil, not only did Petron acquire a stake in EMB, it had also bought the unlisted downstream business of ExxonMobil which includes Exxon's industrial and wholesale and aviation fuels operations, the Port Dickson refinery, along with equity interest in 10 fuel distribution terminals and 560 branded retail fuel sites.
To date, less than 10% of the balance shares held by minority shareholders had accepted the takeover offer, hence Petron still has a long way to go to reach the threshold of 90% shares to compulsorily acquire the remaining shares.
Petron and persons acting in concert currently hold 69.66% of EMB including 3.09% stake valid acceptances from the minority shareholders as of April 25.
In Petron's circular to shareholders via Maybank Investment Bank Bhd, it said it did not intend to maintain the listing status of EMB, and has no plan take any steps to address any shortfall in the public shareholding spread of EMB.
This is an often used phrase by parties involved in any buyout offers of listed companies. However, few facts need to be made clear.
Industry sources familiar with buyout offers said that normally, if listed companies were faced with a shortfall in public shareholding spread, regulators were inclined to help the company regulate its shareholding instead of paving the way for the company to delist itself.
“If a listed issuer fails to maintain the required shareholding spread, it may request for an extension of time to rectify the situation.”
He said the enforcement action of suspension of trading in securities and de-listing due to non-compliance of the public shareholding spread was not automatic.
“To date, the regulators had not forcibly de-list any listed entities due to non-compliance with public shareholding spread,” he said.
Under the Listing Requirements, a listed issuer must ensure that at least 25% of its total listed shares are in the hands of public shareholders, while Bursa Malaysia may accept a percentage lower than 25% if it is satisfied that such lower percentage is sufficient for a liquid market in such shares. If the offeror does not intend to maintain the listing status of the listed issuer and the acceptances under the offer is more than 75% but less than 90% of the listed shares, the listed issuer may apply for the withdrawal of its listing from the exchange, provided that the listed issuer has obtain shareholders' approval via a shareholders' resolution.
On the flipside, should Petron sweeten the deal more to entice minority shareholders to give up their shares, given that the company's intention to undertake substantial capital investments to upgrade EMB's assets including the ailing Port Dickson refinery?
“While the fuel marketing business yields steady gross profits by virtue of price regulation in Malaysia, the refining business is highly volatile,” said an industry source.
He said the refinery was configured as a simple hydro-skimming plant, with feedstock being limited to light sweet crude which was expensive. “As a result, gross refining margins are weak, and given the general weakness in refinery economics, this is expected to continue.”
Some are of the opinion that RM3.59 was already a good offer since its share price was traded below RM3 prior to reports on possible corporate activity in early 2011, which represented a premium of about 20%.
Some, like Minority Shareholder Watchdog Group chief executive officer Rita Benoy Bushon, said the offer price for EMB was neither fair nor reasonable to minority shareholders, as its historical share price had been artificially depressed due to the illiquid status of the company's shares.
“The offer values EMB at a mere 6.3 times earnings, which is a significant (and unfair) discount to its other listed peers. For example, its much larger rival Petronas Dagangan Bhd trades at 21.5 times earnings, while the entire market trades at around 17 times earnings,” she said, adding that the acquisition would only go through if the minorities allowed it.
With Petron extending its offer from April 30 to May 14 to acquire all the remaining shares, the ball is still in the court of the minority shareholders.
Bear in mind that this investment, if held on, would not yield near-term dividend yields due to the company's capital expenditure, which might affect its ability to pay dividends.
For the longer term ahead, nobody knows how far Petron and its affiliated parent San Miguel would expand and improve on EMB.
For now, Petron's plans are tied to the decision of these scattered and highly fragmented minorities.