Please Don't Go Away Blue Monster

KUALA LUMPUR: Datuk Pang Chin Hin and his sons are proposing to take Mamee-Double Decker (M) Bhd to go private. Pang, the executive chairman of Mamee, and his sons Datuk Pang Tee Chew and Datuk Pang Tee Nam collectively own more than 45 per cent of the company. The trio, and other shareholders who in total own 71.9 per cent of Mamee collectively are offering the remaining stakeholders in the company RM4.39 a share.

Last Friday, the major shareholders of Mamee-Double Decker, who own 72% of the company, proposed a privatisation of the company via Section 64 of the Companies Act, 1965, which entails a capital reduction and repayment. Such a proposal will require the approval of 75% of the minority shareholders of Mamee-Double Decker. In other words, the Pang family, which controls 72% of Mamee-Double Decker, will not be able to vote on this proposal.

All analysts have placed their views that the capital repayment offer of RM4.39 is indeed a fair deal. The fair value put by other research houses including mine:

Aboi's House: RM3.45 http://aboiwealthpot.blogspot.com/2010/11/time-4-revaluation.html
Kenanga Research: RM3.65
OSK Research: RM3.44
The Others: RM3.30 to RM3.70 range http://mamee.investor.net.my/analyst-reports

The company also noted that its shares had been thinly traded. In its announcement on Friday, Mamee-Double Decker pointed out that the daily average trading volume of its shares over the past one year was approximately a mere 0.22% of its total free float.

It said that given the “challenging environment and low trading liquidity” of its shares, the selective capital repayment represents “an opportunity for entitled shareholders to realise their investments in Mamee-Double Decker at an attractive premium above the historical trading prices.”

 
In Malaysia, most of the time many good companies choose to go private because of illiquid trading, for the case of Maxis and also Astro. The market does not really reflect the value of the company. BUT for Mamee's case it does not seemed to be it, the market value is properly putting a value on it in my opinion (based on DCF computation). Then why? Is the Pang family trying to make a profit by realizing premiums from a take-private transaction? Maybe that is half the reason. Nothing wrong but it is not good for the overall market if this trend continues on for good listed companies in Bursa, making our market look unattractive to investors.

An offer of RM4.39 is a very good deal and I would gladly take it too as a minority shareholder. If the deals go through it looks like we are missing another good company from the market, a company who just got their profit rolling in nicely. Sad to say there is no hard line in predicting when a company will go private BUT a good filter might be looking at companies who are owned by family or individuals with big stake holding share. A few examples would be like FREIGHT, ZHULIAN, Ananda's & Vincent's related companies.

Anyway the main point of this post is to show you once again that one of the good ways to calculate the fair value of a company is thru DCF modelling. It is relatively simple once you get the hang on it. If you need the spreadsheet please email me and I will send mine as reference for your own investment use. If you had bought it at the time of my previous writing you would have pocketed a handsome gain of RM0.74 or 21.26% returns at sell price of RM4.22! Call it lucky since my initial plan was to invest in Mamee in the long run, as such my fair value for MAMEE still remains the same at RM3.45, the RM4.39 price is just an offer and is not reflective of the fair value by the major shareholders.