Penguin International

[dydx]

Hi ghchua,

Please bear in mind we are investors of our own money in the real world, which is changing and progressing, and the past and statistics are really for those who choose to believe in them, possibly because they can't understand what's happening and do not want to take a critical view on the underlying business into the future, which the Offeror consortium is clearly focussing on, for their own and selfish benefits. That's why they are taking all the trouble and incurring time, money and other resources to launch a general offer to buy up all the Penguin shares from the minority shareholders. Clearly they are not doing us a favour; they are do so for themselves!

As investors, we have to take our own decisions based on our interests and circumstances. The IFA's opinion is nothing more than a reference, or worst still, a lousy one like an academic exercise document. The IFA and IDs don't guarantee our investment success, we just have to do our best to look after our own interests. You can understand this well, I am sure.

[Mushy]

They are not going to be super generous and therefore they will not revise, regardless of what thy stated about their intention to delist the company. There is nothing wrong to state such an intention and not go all out to achieve it.

Hi Mushy,

I think we should not doubt the offeror's intention as stated in the circular, which is to make Penguin its wholly owned subsidiary and delist it.

We must understand that the offeror, Dymon Asia is a private equity firm. Why would they want to hold onto a listed company? Granted it does not mean that they will not, but I will just mean that they would not be able to derive maximum value from running this exercise and end up with a controlling stake in a listed company.

I do not doubt that the offerer has intention to acquire and delist penguin, at the start. This is a black and white fact. It is a fact that they are not required to make it happen. At this stage, I strongly doubt they will achieve it at an offer of 65c. I doubt they will achieve it if they revise to a higher offer with a few % points more (typically what we has been seeing recently, e.g. sunningdale +6.5%). They can definitely achieve it if they offer alot more, but why would they be so generous. Remember the offer is deemed reasonable, taking into account the factors you had listed. I do agree with the IFA assessment. This is definitely not a low ball offer.

Just a few day earlier, I did imagine buying shares at 65.5c and wait for a higher offer. With a base of 65c, its a cheap bet and I have nothing much to lose. This path obviously is not being taken by shareholders in the market.

Of course, the chance of a revised offer is always there with a probability of > zero. Therefore, if I accept the 65c offer, I am not selling in the market.

ghchua, thanks for your sharing last few posts. Also those in other threads. It really helped me make my own decision.

[ghchua]

Hi ghchua,

Please bear in mind we are investors of our own money in the real world, which is changing and progressing, and the past and statistics are really for those who choose to believe in them, possibly because they can't understand what's happening and do not want to take a critical view on the underlying business into the future, which the Offeror consortium is clearly focussing on, for their own and selfish benefits. That's why they are taking all the trouble and incurring time, money and other resources to launch a general offer to buy up all the Penguin shares from the minority shareholders. Clearly they are not doing us a favour; they are do so for themselves!

As investors, we have to take our own decisions based on our interests and circumstances. The IFA's opinion is nothing more than a reference, or worst still, a lousy one like an academic exercise document. The IFA and IDs don't guarantee our investment success, we just have to do our best to look after our own interests. You can understand this well, I am sure.

Hi dydx,

Definitely. I can get all the points that you have put forward here. They had been very useful and I thank you for that. As to your point on the future prospects of the business, I would like you to refer to the terms of reference in the IFA letter. They have stated clearly that it does not require them to evaluate or comment on the rationale for, and the strategic or long-term merits of the Offer or on the future prospects of the company. However, they might take them into consideration based on directors' input in arriving at their opinion.

So, it is quite obvious to me that they are not analysts but IFA. But I disagree with your point that IFA letter is merely an academic exercise document. The new rules from SGX Regco on delisting had been based on IFA opinions. So, IFA opinions do have practical implications here with respect to whether SGX Regco allows delisting of companies or not.

[ghchua]

Just a few day earlier, I did imagine buying shares at 65.5c and wait for a higher offer. With a base of 65c, its a cheap bet and I have nothing much to lose. This path obviously is not being taken by shareholders in the market.

Hi Mushy,

Just ask yourself this question, why is this path not taken up by minorities? Minorities could have bought up the shares to 65.5c, which would have blocked the offeror and prevented them from buying more shares from the market at 65c, unless they intend to increase the offer price.

Now let us observe another offer that is deemed "not fair but reasonable" by IFA and currently is still ongoing. GL minorities have bought up the shares to above 70c (the offer price), and currently the shares are trading at around 72.5c. The offeror could no longer acquire any GL shares from the market at 70c, unless they intend to revise the offer upwards.

[dydx]

Definitely. I can get all the points that you have put forward here. They had been very useful and I thank you for that. As to your point on the future prospects of the business, I would like you to refer to the terms of reference in the IFA letter. They have stated clearly that it does not require them to evaluate or comment on the rationale for, and the strategic or long-term merits of the Offer or on the future prospects of the company. However, they might take them into consideration based on directors' input in arriving at their opinion.

So, it is quite obvious to me that they are not analysts but IFA. But I disagree with your point that IFA letter is merely an academic exercise document. The new rules from SGX Regco on delisting had been based on IFA opinions. So, IFA opinions do have practical implications here with respect to whether SGX Regco allows delisting of companies or not.

Never mind about the rules book. So I guess likely you will accept the Offer, or you may not? Good luck!

[Corgitator]

Just a few day earlier, I did imagine buying shares at 65.5c and wait for a higher offer. With a base of 65c, its a cheap bet and I have nothing much to lose. This path obviously is not being taken by shareholders in the market.

Hi Mushy,

Just ask yourself this question, why is this path not taken up by minorities? Minorities could have bought up the shares to 65.5c, which would have blocked the offeror and prevented them from buying more shares from the market at 65c, unless they intend to increase the offer price.

Now let us observe another offer that is deemed "not fair but reasonable" by IFA and currently is still ongoing. GL minorities have bought up the shares to above 70c (the offer price), and currently the shares are trading at around 72.5c. The offeror could no longer acquire any GL shares from the market at 70c, unless they intend to revise the offer upwards.

Because minorities are just being opportunistic, just like the very offerors that they are complaining about. They want to force a revised offer from the offeror by putting forth the undervaluation argument, without risking additional cents from their pocket.

Otherwise, if the business is indeed materially undervalued at $0.65 (say the intrinsic value is $1, just plucking from thin air), the minorities would have bidded up the price to $0.655 or more, as you suggested.

Truth is, at the back of their mind, the minorities know that there's a risk their valuation is wrong, the company remains listed, and price falls back. So most of them are not putting extra money where their mouth is.

End of the day, both minorities and offerors are opportunistic (who isn't?).

As for the role of IFA, or fairness opinions in other countries, I've always wondered the purpose of them. If investors are not provided valuation guidance when they purchase the shares, why should it be any different when it comes to selling the shares in a takeover?

So maybe the IFA is more for providing an additional data point for BoD to make their recommendation to shareholders? But shouldn't BoD have at least an ID that is well-versed in corporate finance and can lead the board in making the recommendation? Really sounds like partial outsourcing of board duties IMO.

[lonewolf]

Never mind about the rules book. So I guess likely you will accept the Offer, or you may not? Good luck!

If you know him, he never accepts any GO/PO. 

Just go to his blog and see the list of unlisted companies he remains a shareholder of (by virtue of being a dissenting shareholder I presume)

[ghchua]

As for the role of IFA, or fairness opinions in other countries, I've always wondered the purpose of them. If investors are not provided valuation guidance when they purchase the shares, why should it be any different when it comes to selling the shares in a takeover?

So maybe the IFA is more for providing an additional data point for BoD to make their recommendation to shareholders? But shouldn't BoD have at least an ID that is well-versed in corporate finance and can lead the board in making the recommendation? Really sounds like partial outsourcing of board duties IMO.

Hi Corgitator,

You are right in a sense that IFA letter had always been addressed to the independent directors of the board and not shareholders of the company. The independent directors, having considered the IFA advice, will make a recommendation to shareholders. Ultimately, it is the independent directors that are responsible for their recommendation and they can also choose not to concur with the view of the IFA. There are cases in previous takeover offers whereby the independent directors do not concur with the IFA advice. Of course, reasons must be given if their views defer from the IFA.

However, as mentioned by me in the previous post, IFA opinion has also been taken into consideration by SGX Regco when they determine whether a company can be delisted from SGX via GO, voluntary delisting or Scheme of Arrangement.

[pianist]

Never mind about the rules book. So I guess likely you will accept the Offer, or you may not? Good luck!

If you know him, he never accepts any GO/PO. 

Just go to his blog and see the list of unlisted companies he remains a shareholder of (by virtue of being a dissenting shareholder I presume)

But I read his monthly blog contents, he also been accepting offers more readily, likely driven by those mathematical logical probability sense than valuation perspective

[Corgitator]

Hi Corgitator,

You are right in a sense that IFA letter had always been addressed to the independent directors of the board and not shareholders of the company. The independent directors, having considered the IFA advice, will make a recommendation to shareholders. Ultimately, it is the independent directors that are responsible for their recommendation and they can also choose not to concur with the view of the IFA. There are cases in previous takeover offers whereby the independent directors do not concur with the IFA advice. Of course, reasons must be given if their views defer from the IFA.

However, as mentioned by me in the previous post, IFA opinion has also been taken into consideration by SGX Regco when they determine whether a company can be delisted from SGX via GO, voluntary delisting or Scheme of Arrangement.

Fair points. But I'm more concerned about how much value IFAs add. My key push backs will be:

1. Compared to IFAs, IDs should be (at least I hope so) more familiar with the business, and be in a better position to assess  (I hope so, again) whether the offer is fair and reasonable. Why would we need to hear Jim Cramer's opinion on an issue when we already have Warren Buffett's opinion? Between IDs and IFAs, notwithstanding that they are each bounded by their own code/rules, I am inclined to think that IDs are in a better position to be independent and have more skin in the game, compared to an advisory firm that's on a paycheck.

2. IFA opinion has to be BOTH reasonable and fair for SOA and voluntary delisting. I believe intent of the rule is that when the offer is not fair and reasonable, offerors are forced to go through the higher hurdle of GO i.e. there's more protection for minorities when offer is not fair and reasonable. I agree that this is a reasonable framework. But I'm of the view that ID should be the sole person providing the fairness opinion. I mean, that's their job isn't it? I guess a sensible rebuttal would be that the ID may not have the requisite valuation expertise to judge the deal, but shouldn't that be a required skill set in at least 1 ID? I thought that's the main reason behind the push for a more diverse BoD, with representations from different functions (strategy, finance, marketing, law etc).

All in all, in my ideal world, there will be no requirement for IFA, instead the sole responsibility will be placed on the ID. The ID will lead the BoD in making the decision as to whether the offer is fair and reasonable, and they are bounded by their fiduciary duty to act in the interests of shareholders. If ID says it's not fair and reasonable, then the same process follows: no SOA or voluntary delisting etc etc.