Malakoff De-listed – Is It the Right Move?

Abstract

The performance of the Malaysian stock market was very encouraging in the year 2007. Despite the recession in the late 1990s, the KLCI has managed to rebound and even achieved an index level of more 1200 points today. However, despite the bullish and positive outlook of the Malaysian market, a new phenomenon has emerged. In the recent years, the Malaysian market faced an increasing number of major public listed companies seeking exit from the Exchange. More than RM79 billion in capitalization was ‘removed’ from Bursa Malaysia in 2007; a trend causing concerns especially amongst investors. Various reasons have been found to be the factors that influence these companies to voluntarily de-list themselves but nevertheless, the phenomenon warrants more than mere attention. The biggest impact of this phenomenon was probably the de-listings of blue-chip companies such as Maxis Communications Berhad, PBB Oil Palms Berhad, Berjaya Capital Berhad and Malakoff Berhad. Whilst involuntary de-listings are seen as a good effort in ensuring that the Exchange has strong and competitive firms, the concern is otherwise for firms which chose to voluntarily de-list themselves. Therefore this study was conducted to further explore the issues in relation to the voluntary de-listings of these companies. Issues examined were such as the motives, impacts as well as the perceptions on voluntary de-listings. In assessing these issues, various literatures on de-listings were examined and a general survey on the perception towards voluntary de-listing issues was conducted. The survey was targeted at respondents who have participated in Bursa Malaysia such as investors, analysts and brokers. Nevertheless, this study undertook to explore the de-listing issues by way of a case study on a particular firm that had voluntarily de-listed itself from Bursa Malaysia. Focus was given on the decision to de-list by Malakoff Berhad. Malakoff Berhad was listed since 1976 but has been removed from the Exchange in July 2007 following the decision to accept its acquisition by MMC Corporation Berhad. The acquisition was conducted by way of a leveraged buy-out deal which was the largest leveraged buy-out exercise in Malaysian history. In addition, the deal’s financing package was significant in that it included a Junior Sukuk bond, the first corporate hybrid debt security in Malaysia and the first Islamic corporate hybrid instrument with a hundred percent (100%) equity weighting. This study assessed the validity of the de-listing decision by Malakoff by analyzing the value of Malakoff Berhad through two methods of valuation; the discounted cash flow valuation method and the comparable firm analysis or the relative valuation method. The valuation of Malakoff involved not only Malakoff Berhad but also the valuation of its local and overseas projects to attain the real net asset value of Malakoff itself. Data was obtained from interview sessions, corporate annual reports, analyst reports and other published reports. The result of the valuation showed that the value of Malakoff Berhad was higher than the acquisition price of RM10.35. This study also conducted scenario analyses in assessing Malakoff’s decision. The scenario involved Malakoff’s alternative options on its de-listing move such as the option for Malakoff to remain as a public listed company or the acquisition of MMC instead. This study found that given the positive future growth of Malakoff in the international market, the premium paid to Malakoff shareholders on Malakoff’s acquisition by MMC Corporation should have been higher. Malakoff would also be able to obtain higher market prices should it had opted to stay listed on Bursa Malaysia. It is hoped that this study will provide some view on the de-listing issues through financial theories and real life practices as well as offer an insight for companies that have plans to de-list themselves from the stock market and investors in general.