EGM of AP Land is adjourned

Yesterday, October 25, 2011 was the EGM of Asia Pacific Land Bhd. (AP Land) to vote on whether to sell the group's assets and liabilities to Low Yat Holdings (M) Sdn Bhd (LYH) for 45 cent per share or RM 305 million. LYH owns 34% of AP Land and thus will abstain from voting.

Interestingly, the EGM was adjourned to November 8, 2011. This might indicate that things did not go as well as the major shareholders of AP Land had hoped for.

It turned out that an important error was made, in the circular it stated:

But in reality they found the proposal not fair. A big differcence since this is a huge red flag, it seldom happens that the non-related directors dare to give this opinion. So the good thing is that:

• The non-related Directors dared to speak out

• The error was admitted and corrected in a statement to Bursa Malaysia

• The error was deemed to be important enough to adjourn the EGM to November, which seems indeed the right thing to do, since proxy voters might change their mind, knowing about this rather unusual warning

I still find it strange, if the non-related Directors find it unfair then they should try to come with a better, more fair solution. At least they could come with some alternatives.

Four MSWG (Minority Shareholder Watchdog Group) representatives took turns to "grill" the Board, a good development which is completely normal and accepted in Western countries (if the directors can't stand the heat, they should get out off the kitchen).

MSWG (Minority Shareholder Watchdog Group) wrote about the deal:

• in The Star: "Be fair to Minority Shareholders

• on their own website: http://www.mswg.org.my

"Minority investors, who are the same men and women who believed the story of the major shareholders. Thus it is only right that major owners do right when the time comes to part. Our advice to minority shareholders of AP Land is vote wisely. With your small but influential ownership (10 lots and less) you already make up 90% of the total number of shareholders. Most of the 66% of shareholders eligible to vote on the proposed disposal are minority retail shareholders."

In The Edge Malaysia of October 24, 2011 Jennifer Jacobs wrote "D-Day for AP Land", one part of the article:

"But a minority shareholder, who is not happy with the offer, points out that AP Land has huge potential that can be unlocked if the privatisation does not go through. AP Land is poised for gigantic growth with massive property development in the pipeline coupled with strategic business in overseas resort development, tertiary education in Malaysia and China, and oil palm plantations in Indonesia's East Kalimantan. This should translate into future dividends and capital gains for shareholders if AP Land is not privatised, he says. With such great prospects for exponential growth, it is only pertinent to ask why the board of AP Land is willing to sell out to the major shareholders and that too, so cheaply. The biggest losers in this deal are the helpless minority shareholders like us, he adds."

I agree, I have seen too often that it takes time for a company to position itself for future growth, and that when the time is right it sells its assets too cheap. In this case, the price offered is at a huge discount of 57% to the adjusted audited net asset value. That doesn't sound very fair.

The other side of the coin are the hugely overpriced Related Party Transactions where a company buys assets from its major shareholders at inflated prices, many examples have been given on this blog.

For these practices to end, Malaysia needs:

• Directors, who don't toe the line, who dare to speak up

• Advisers, who write unbiased, high quality reports regarding the deals on the table

• Institutions (Securities Commission, Bursa Malaysia and SSM) who take decisions without fear or favor, and who continuously amend the rules for a more level playing field

• Razor sharp journalists, who bring up these issues in the right context, who are not afraid to write critical articles about the captains of industry, who have been protected for much too long time

• Minority shareholders, who actively fight for their rights and vote accordingly

Regarding the Directors, I don't see any progress at all, but for the other items I do see some improvements. In this AP Land case, I obviously was too harsh regarding the non-related directors, so there might be hope as well on this front.

For AP Land, I really hope that the minority shareholders will put up a fight, that the deal will not go through, forcing the major shareholders either to increase their bid to a more reasonable price, or to start unlocking the value in the company. One simple way would be to sell certain assets (like the Rawang land or the plantations) in a public auction and to return the proceeds to all shareholders. I stick to this opinion. Some shareholders might have been with the company for ten years, they only received one single dividend, they clearly deserve a better deal than the one on the table.