China Essence

Qiaofeng Wrote:It is imperative that SGX see the "Big Picture" and clean up.

I agree. But so far I see no evidence of this at the SGX. Remember that none of the key executives is a significant shareholder. SGX is run by professionals, which is code for "heads I win, tails you lose". That's why Magnus Bocker could spend $12m of shareholders' money on the bid for ASX - because if it failed it wasn't his money, and if it worked he could potentially get a big bonus. Even if there was no bonus it would be a nice boost to his resume - and paycheck - for his next job.

It's not only the ang moh boss of SGX, a lot of other folks are doing the same, on a smaller scale.

Middle level executives spending on lavish entertainment, not to get more business, but
to entertain themselves and other executives from other regions.

Planning on long business trips just before the year end holidays so as to start their
year end holidays early.

Disguising some private consumption expenses as company expense...i.e. cars.

So there must be some catch to all these activities right?
No and yes.

No, it's all within company policies/regulations. Party continues, recession or no recession.
It doesn't matter if the company does well, it matters only if they do well.

Yes, these folks will never be able to start a company on their own.
Way too easy to leech and collect a fat pay packet. If they do, they will be too weary of
leeches like themselves for the company to be able to function normally.

(26-12-2011, 05:43 PM)d.o.g. Wrote:

Qiaofeng Wrote:It is imperative that SGX see the "Big Picture" and clean up.

I agree. But so far I see no evidence of this at the SGX. Remember that none of the key executives is a significant shareholder. SGX is run by professionals, which is code for "heads I win, tails you lose". That's why Magnus Bocker could spend $12m of shareholders' money on the bid for ASX - because if it failed it wasn't his money, and if it worked he could potentially get a big bonus. Even if there was no bonus it would be a nice boost to his resume - and paycheck - for his next job.

On the topic of M&A, the worry that he will overspend (again?) in pursuit of other targets (think LME) is keeping SGX from realising its intrinsic valuations.
And I agree with U that the asymmetric incentives structure is to blame.

hi QiaoFeng,
The valuation for ASX was on the high side but SGX was paying half of the price in SGX shares and SGX shares were trading at a much higher PE than ASX. Therefore, it was EPS accretive. So, although the price was expensive but the payment mode wasn't.

Could you explain a bit more about your statement of 'keeping SGX from realising its intrinsic valuations'?

Talking about asymmetric incentive structure, this reminds me that i have forgotten my duty as a shareholder to look into whether Magnus Bocker was 'penalised' for his failed attempt to buy ASX...I would turn into a full blown sceptic like d.o.g. if he didnt..

(27-12-2011, 01:51 AM)weijian Wrote: hi QiaoFeng,
The valuation for ASX was on the high side but SGX was paying half of the price in SGX shares and SGX shares were trading at a much higher PE than ASX. Therefore, it was EPS accretive. So, although the price was expensive but the payment mode wasn't.

Could you explain a bit more about your statement of 'keeping SGX from realising its intrinsic valuations'?

Talking about asymmetric incentive structure, this reminds me that i have forgotten my duty as a shareholder to look into whether Magnus Bocker was 'penalised' for his failed attempt to buy ASX...I would turn into a full blown sceptic like d.o.g. if he didnt..

Could you explain a bit more about your statement of 'keeping SGX from realising its intrinsic valuations'?------- Subjective; as everybody probably has his own intrinsic value; so let's not go into it.

Let's talk about what is consensus which U also agree on-----that "The valuation for ASX was on the high side".
To entice ASX shareholders and the Board----Magnus Bocker had to dangle a huge lure (bait). So a high premium was the outcome.
In fact, I do not disagree with this part of the dealmaking; if the outcome was positive.

The political minefield was the huge and expected stumbling block----- given SG Inc previous experiences eg SIA wrt Qantas.
So I had expected that the CEO must have prepared the ground sufficiently before announcing the offer. One would have expected that the relevant political factions had been consulted to have a feel of the degree of " political buy-in" on the offer.
If so, then the $12m of shareholders' money would have been well spend.
Apparently the $12m ( a big sum, IMHO) in associated fees is spent (" overspent") w/o any corresponding benefits.

To me it is simple---- produce results (accretive) and the intrinsic value goes up.
Spend time and money, raise expectations on difficult and politically sensitive M&As and then fail------ destroy shareholder value, intrinsic value drops.

(27-12-2011, 02:56 PM)Qiaofeng Wrote: Spend time and money, raise expectations on difficult and politically sensitive M&As and then fail------ destroy shareholder value, intrinsic value drops.

This is extremely common. Nothing to cry about. Even if the deal go thru successfully and 10 years down the road, the premium was realized to be not justifiable with a loss, people will come back and scold Magnus.

Shareholders or observers sometimes on sidelines think retrospectively or even sometimes prospectively that better work could have done or failures could have been prevented if this or that was done more properly. However, they do not realize that true full value maximization will never happen in the real world as nobody would want to offer or accept that kind of deal. I would rather respect management who executes, put in the hard work to try and if failed, pick up and go on to the next one.

(27-12-2011, 10:34 PM)mrEngineer Wrote:

(27-12-2011, 02:56 PM)Qiaofeng Wrote: Spend time and money, raise expectations on difficult and politically sensitive M&As and then fail------ destroy shareholder value, intrinsic value drops.

This is extremely common. Nothing to cry about. Even if the deal go thru successfully and 10 years down the road, the premium was realized to be not justifiable with a loss, people will come back and scold Magnus.

Shareholders or observers sometimes on sidelines think retrospectively or even sometimes prospectively that better work could have done or failures could have been prevented if this or that was done more properly. However, they do not realize that true full value maximization will never happen in the real world as nobody would want to offer or accept that kind of deal. I would rather respect management who executes, put in the hard work to try and if failed, pick up and go on to the next one.

If U read my post carefully, I am not criticising business aspects of the deal such as premium etc.
But, the large sum spent on advisory fees w/o ascertaining the political buy-in------ knowing that that is the stumbling block.
They did not have FIRB approval or the Treasury (Wayne Swan)support and it is a known fact that Australian politicians -- whose approval is necessary to lift a 15 percent shareholder cap -- were very negative to the whole proposition.
So why spend $12m on it.
It is a bet I wished would work out----But, the day it was announced, I knew that was wishful thinking becos the odds were stacked steeply against success.

The point is not about crying over spilt milk.

The discussion is important and relevant becos SGX shareholders ( me vested) will want to know that the same mistakes are not repeated at LME, if SGX do make a bid. There is a lot of flux in the LME case and the biz proposition is not that straight forward. My hunch is that advisory fees would be much much higher in this scenario.

Some feel of the complexity------
By ownership there are 2 share classes.
By trading methods there are 3 types (Open outcry, electronic, telephone transactions)
Any change in ownership needs approval from members holding 75 % of ordinary shares.
Fees are kept low for its members who also own the business.
JP Morgan and GS, both owners and members have a huge say and are buying up shares in the run-up.
SGX forte under Magnus, is the electronic trading platform (REACH?). LME is the last bastion of the open outcry system where the big trades are done and there are huge historical sentiments (hence baggage) attached, by the Brits.


So altho I wanna buy more SGX, when prices dipped--- I am wary of the uncertainty associated.


That said, Magnus Bocker is a consummate deal maker hired becos of his track record (IMHO).

My 1cG

Essence seemed to be showing some trading activities ahead of its 3Q results announcement....
someone came in with quite huge bids..

"The Group also plans to expand the production capacity of modified starch, in line with its
strategy to increase sales of modified starch to more industries. We are still talking to a few
parties who have expertise in this area to jointly develop this product segment and expect to
roll-out expansion plans in the later part of 2011 (FY2012)."

The company made the above announcement in May 2011, and 3 quarters have passed.
Is the company close to finalizing the details of the JV structure with the interested parties?
If this JV is firmed up and rolled out, it will certainly create internal demand within the company for its own higher value products

---

"The Group also plans to expand the production capacity of modified starch, in line with its
strategy to increase sales of modified starch to more industries. We are still talking to a few
parties who have expertise in this area to jointly develop this product segment and expect to
roll-out expansion plans in the later part of 2011 (FY2012)."

The company made the above announcement in May 2011, and 3 quarters have passed.
Is the company close to finalizing the details of the JV structure with the interested parties?
If this JV is firmed up and rolled out, it will certainly create internal demand within the company for its own higher value products

---