MetroJaya's Privatisation Issue

13th Aug 2003.

That was the date when MetroJaya announced that its parent holding company, PMI, is making a VGO to buy up the remaining shares of MetroJaya at an offer price of 1.25. (the offer price was later raised to 1.35)

See MetroJaya's VGO

The following is MetroJaya's quarterly earnings posted some 10 days after the VGO announcement: Quarterly rpt on consolidated results for the financial period ended 30/6/2003

From the earnings announcement we can see the following issues:

1. MetroJaya was in a clean slate of health. No borrowings at all.
2. Piggy bank cash totalled 100.149 million.
3. Amount due from holding company was 85.268 million.
4. MetroJaya total number of shares totals some 124.921 million.

Now consider this, if the holding company, PMI repays the moolah owed to its subsidiary, this would mean that Metrojaya's cash alone would total some 185.417 million.

This would work out to some cash per share value of 1.48 sen per share. (185.417 divided by 124.921 million)

Soooooo how does one rate the fairness of this whole deal?

A VGO offer of 1.25 when the company's cash per share is 1.48.

Fair onot?

Someone posed the following question to me before...

WHy do u think a listed company chose to be private and instead of continue to be listed? If the benefit to be privatised is NOT SUBSTANTIALLY more than being listed, no sane management would choose this path, would they?

How? Do you think that's a good point?

And now consider this also. MetroJaya embarked on a sharebuyback program a couple of months before the VGO was announced and continued doing so after the VGO announcement! (this is one of their buyback announcement: Notice of Shares Buy Back - Immediate Announcement )

And of course, not all shareholders were happy with the offer. The majority accepted the offer but there were some shareholders who were wise enough to understand that this whole offer was totally blatantly unfair to them.

The following article puts everything into perspective in my opinion: A Question Of Timing

Let's look at some of the issues mentioned.

Last Monday, Metrojaya declared an interim dividend of 34 sen per share gross or a total payout of RM42.84 million for the current financial year (FY) ending March 31, 2005, to be paid on Dec 22.

This came shortly after it paid RM18.9 million, or 15 sen per share, in interim dividends for FY2004 on June 18.

Both dividends add up to RM61.74 million (before tax), which is three times Metrojaya's accumulated profits of RM21.1 million as at Sept 30.

This drew some feedback from a friend: "First throw out the minority shareholders with a crazy low price (less than the cash per share!!!!), now they "suddenly" start to pay huge dividends. For your info, average dividend over the last 10 years or so was between 3 and 4 ct nett."

But while Metrojaya's minority shareholders (which now hold 9.33%) are finally reaping some rewards from the company's attractive cash reserves, perhaps not everyone is happy.

"Those who had accepted the VGO and sold their shares in January cannot benefit from the recent generous dividends," says a broker. He says these ex-minority shareholders had previously accounted for 25.95% of Metrojaya's shareholding.

Should Metrojaya have paid out the generous dividends before the VGO to benefit more minority shareholders?

Very well said. Those that accepted the VGO would surely not be happy!

Why did MetroJaya only decided to pay out generous dividends AFTER the VGO?

By making the generous dividends after the VGO, PMI has been able to retain more dividends from Metrojaya as it has a higher shareholding 90.67%," says a market observer.

And those minority shareholders that accepted that VGO would probably be disgusted and shattered when they read the following article in today's Star:

Capital repayment to enhance Metrojaya’s return on assets

Sooooo how just was MetroJaya's privatisation exercise?