Lessons for retail investors from Sinarmas Land's revised higher privatisation offer

When a privatisation offer was made for Indonesian property developer Sinarmas Land at 31 cents per share at the end of March, there was a general sense of outrage among minority shareholders at what was perceived to be a lowball, poor bid price.

- David Gerald

The Securities Investors Association (Singapore), or Sias, shared this view. When the independent financial adviser's (IFA) opinion was released in mid-April, Sias noted that the IFA had said the offer was "not fair". Sias also disagreed with the IFA's fair valuation range of 35 cents to 36.1 cents, because these prices represented too large a discount to the net asset value (NAV) per share of 85 cents.

Sias also said it did not endorse the IFA's advice to Sinarmas' independent directors to advise shareholders to accept the offer; instead, Sias advised minority shareholders to not only reject the "lowball" price but also called upon the offeror to raise its price closer to the NAV.

It is not uncommon for some IFAs to deem an offer as "unfair" or "unreasonable" and yet recommend that the offer be accepted, a development that upsets shareholders. This is despite the fact that the regulatory position is that the offer has to be both "fair and reasonable". As the major shareholder cannot vote on the privatisation offer, the minority shareholders alone decide on the fairness of it. In many cases, minority shareholders rush to accept a lowball offer.

The IFA handling the Sinarmas offer had initially defended its valuation methodology. But on May 10, the offeror raised the price by 21 per cent to 37.5 cents—a significant improvement. This was after Sias objected to the lowball offer. There are valuable lessons retail investors can draw from the episode.

ALWAYS WAIT FOR THE IFA'S OPINION BEFORE DECIDING

From the time the Sinarmas offer was made but before the IFA's report was issued, shareholders owning some 22 per cent of the company's shares accepted the original offer of 31 cents. This was disappointing.