D-Day for MAXIS Shareholders but A.K.’s Fortune Doubles

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May 03 2007
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Mark the time – it’ll be another 1 and a half hour from now – at exactly 1:30pm Malaysia Time (0530 GMT), Maxis Communications Berhad (KLSE: MAXIS, stock-code 5051) will reveal the bid-price for all existing shareholders in a plan to take the Maxis private.
CIMB Bank (Commerce International Merchant Bankers), an investment bank of Bumiputra-Commerce Holdings Berhad (KLSE : COMMERZ, stock-code 1023), said it’s chief executive Nazir Razak and the chairman of bidding vehicle Binariang GSM Sdn Bhd, Raja Arshad Raja Uda, would unveil the conditional voluntary general offer at the news conference.
The Business Times said the offer would be pitched at between 14 and 15 ringgit per Maxis share, which translates to 8-15 percent premium over the stock’s last traded price of 13 ringgit. This would put the buy-out cost at between USD$5.5 billion and USD$5.9 billion. It’s a staggering RM 20 billion deal making it the biggest in the history of Malaysian corporate scene.

The advisers for the deal are CIMB Bank and ABN AMRO Holding (NYSE: ABN, stock). Offering some premium is definitely a must for such a quality stock (it’s a cash-cow sector, mind you) but would the minority shareholders think the offer price is attractive enough?

A rough calculation will put the RM 15 a share offer for existing maxis shareholders way below the 38 times projected earning commanded by Bharti Airtel’s (BOM: 532454). With Maxis closing price of RM 13 per share, it was trading at 16 times. So by offering RM 15 a share, A.K. (a.k.a. Ananda Krishnan) will still have the potential of making an additional RM 20 billion if he were to list it in India’s Stock Exchange assuming Maxis India Corporation (that’s my name for the future listed Maxis in India) will command the same 38 times projected earning. What a brilliant way to double his fortune and instantly becomes Malaysia’s richest man. Note that the abbreviation of A.K. was what tagged by Boon in his blog Trade Bursa Malaysia.

If such plan successful, Ananda Krishnan might replicate the same model to his other pet namely Astro All Asia Network Plc (KLSE: ASTRO, stock-code 5076). And don’t forget he can do the same to PT Maxis (another name came out from my mind) in Indonesia. Who says making money is difficult?

Seriously, if you’re a reader of this post and you’re one of the shareholders, would you accept the $ 15 a share offer? I won’t (but that’s me) but do I have a choice? I’ll probably accept if the offer equals the stock price of DIGI.com Berhad (DIGI : stock-code 6947) which is $ 22 per share (am I too greedy?).

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Maxis Taken Private – Not So Good News for Minority Shareholders

Maxis, Malaysia’s largest mobile telco, has suspended its shares upon receiving notification that Usaha Tegas (“UT”), a company controlled by substantial Maxis shareholder Ananda Krishnan, will make a general offer for shares of the company that it does not already own.

In reality, Maxis had always operated on the basis that UT was the only shareholder. A long running inside joke at Maxis was that whilst everyone in Maxis Tower jumped when they got a phonecall from the 23rd floor (home to all the “C” officers of Maxis including the CEO), everyone on the 23rd floor in turn jumped when they got a phonecall from the 44th floor (home to Ananda Krishnan’s lieutenants (read Ralph Marshall et al) and Ananda himself when he is not on his Dassault Falcon).

So in a way, corporate governance is better served by making explicit this master/servant relationship between Usaha Tegas and Maxis. Indeed, the PT Natrindo deal as well as Aircel was brought to the table by Ananda and UT. Maxis was never a master of its own (and minority shareholders’) destiny.

So in the past 5 years as a listed company, Maxis could have done better for its minority shareholders. I have not yet had a chance yet to dig precise comparative share price and dividend statistics between Maxis and its 2 competitors, Digi and Telekom, but suffice to say that since Dec 2004, Digi’s share price has increased about 300%, not to mention pleasing shareholders with 2 rounds of capital repayments. Maxis on the other hand etched only a gain in share price of 30-40% during the same period, with most of the gain in the last 6 months (after Hutchison Essar deal got folks a little excited about Maxis’ Aircel subsidiary).

So yes, taking the company private under the control of UT would reflect the defacto situation today at Maxis. But whilst folks at Aseambankers and the Asian Wall Street Journal think its positive in that it gives flexibility for Ananda to inject fresh capital in the company, my take is a little less sanguine.

My hypothesis is that minority shareholders will miss out on the windfall that is likely to result from 3 factors.

First , the increasing robust valuation of Maxis’s Indian subsidiary Aircel, which has not been fully factored to Maxis’s stock price

Second, and conversely, the increase in Maxis stock price that would result from cutting loose PT Natrindo (and the capital outlays that it would require) .

Thirdly, a balance sheet approach that is more minority shareholder friendly e.g. returning cash to shareholders in the form of dividend and capital repayments, and introduce more debt to the company to finance this as well as future capex (as opposed to sitting on a cash hoard, which will now, of course, accrue to UT).

So fellow minority shareholders, think about these when deciding whether to sell your shares to UT (not that you have a choice when 47%+ of the vote is already in the hands of AK and UT). To be fair, Ananda has given you a return of about 200% over 5 years since IPO. But I think you deserve more. At the very mimium, RM20.

i agreed with you malek … that’s why i mentioned i’ll only sell if the offer price is $22 per share (that’s today’s DIGI stock price) …

but as usual, minority shareholders are always treated as suckers in malaysia equity market …

Im currently doing a thesis on DiGi…I was wondering if you cld direct me 2 any site that allows me access to DiGi’s share price a few years back??..

Thanks..me email is rongyifoong@hotmail.com

hello anonymous,

you can try to get digi’s past share price from biz.thestar.com.my (limited to 1 year) or finance.yahoo.com itself …

cheers …

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