Saturday 1 January 2022

Best World Management Unfriendly Actions to take Advantage of Minority Shareholders

This post is to highlight the shareholder unfriendliness of Best World (BW) Management to its public shareholders. It bears no form of accusations or slander to its management. 

On 31 December 2021, Best World has offered $1.36 as an equal access scheme where it will buy 10% of its share base. It is built off its equal access scheme which I note has a clause:

2. The purchase price to be paid for the Shares pursuant to
the purchases or acquisitions of the Shares must not exceed:
(a) in the case of a Market Purchase, one hundred and five per cent. (105%) of the Average Closing Price (as
defined hereinafter); and
(b) in the case of an Off-Market Purchase pursuant to an equal access scheme, one hundred and twenty per cent (120%) of the Average Closing Price (as defined hereinafter). (i) “Average Closing Price” means the average of the closing market prices of the Shares over the last five (5) Market Days on which transactions in the Shares were recorded immediately preceding the date of the Market Purchase by the Company or, as the case may be, the date of the making of the offer

Singapore Business Environment is unfriendly to Public Shareholders 

What got me interested was the wording of "must not exceed" and "last five (5) Market Days". The average closing price of BW over its last 5 market days was $1.712.

The company opted to low ball its minority shareholders with an offer at $1.36 which is lowest closing price. This is 80% of the average closing price for 5 days. Do note in the clause which was passed, it mentioned it must not exceed 120% but did not mention how low the price could go. In this episode, the management of BW took advantage of minority shareholders who are unable to realize the value of their shares because the company is suspended under the laws of Singapore regulators which the management has failed to meet.

As investors in Singapore listed companies, it is important for us to read the clauses in share buybacks and other schemes that are tabled in motions of AGM, it seems that a few Singapore companies are taking advantage of the public shareholders via many forms of actions in recent years. 

As the shareholders had passed the motion which has a cap on the high side, but not the downside, the management took advantage of this and tried to offer a very low price. The company could have in fact offered to buy back the shares at $0.01 per share and it would not run afoul of technicalities. However, the independent directors of BW would have been in for severe questioning.

Were the Independent Directors (ID) of BW truly acting for minority shareholders in this episode?

In my opinion, the IDs of BW were doing very little for minority shareholders if they were consulted of the management actions on 31 December 2021. BW is a company which has cash balance of $380 million with little liabilities and generated $160 million in operating activities for a year. The company could well afford to offer $1.712 or even 120% (at $2.054) to its existing shareholders.

The fact that the company had the financial capabilities to do a buyback from its existing shareholders but didn't want to share the cash balance with them (and likely had the IDs blessings) shows the unfriendliness of the management and the IDs' actions.

BW will continue to remain suspended as it encounters difficulty to be lifted from suspension because it has run foul of SGX regulatory monitoring. In the meantime, shareholders are stuck with a low ball offer and no dividends while the majority shareholders, who are the executives of the company, will earn mutli-million dollar salaries (in the excess of $10 million) for its strong profits; these are all approved by the board of directors comprising of the IDs. It is likely until Singapore regulators step in to intervene with the two Doras (co-chairwomen), the public minority shareholders will be on the short end of the stick.

1 comment:

  1. Thank You Choo Yuan, for highlighting the plight of the minority shareholders of BWL. We look forward to more equitable treatment.