GENERAL MAGNETICS conducted its first AGM as an unlisted firm recently. Joyce Hooi of Business Times observed that for an unlisted firm's AGM, it was really well attended but there was so much outpouring of outrage by its shareholders.
GM was listed 20 years ago as a cassette tape maker, "survived the death of the Walkman age, struggled through the Discman decade as a recordable CD and DVD maker and finally succumbed to the iPod era, " as Joyce wonderfully described it.
It made losses by the millions since the turn of century and was put on the watchlist in 2008 before being delisted in April this year.
Why was there so much outpouring of outrage by shareholders at this stage? Some shareholders have held on to their shares year after year for the last 10 years despite the annual warning bells of losses.
In the year 2009, it had revenue of only $3.87 million, and chalked up a net loss of $2.23 million.
Why lament its delisting?
In fact, they were not outraged by the delisting but rather by the fact that the minority shareholders could not force the majority/management to liquidate all remaining assets and distribute the net proceeds to all shareholders.
Why would a shareholder buy shares in a company and hope the company goes into liquidation?
Towards the end of its listed status, the General Magnetics shares traded so far below its net tangible asset value. As at end-2009, the company’s net assets stood at 19 cents a share, of which 6.6 cents was in cash. Other assets included a building in Toa Payoh.
The stock traded at around 8 cents in March this year, just prior to its delisting.
For those who may have bought at those prices, they were probably clamouring for the company to be liquidated.
Learning point - Are you holding on to shares of companies that in recent years have been making significant losses (eg. Creative Technology, which lost US$137.9 m in FY 09 and is forecasting an operating loss for FY10 after losing US$14.2 m in the first 9 months of FY10)?
If so, are you doing anything about it?
This article was adapted from Edgar Wong's blog (http://investingwithedgar.blogspot.com). Through his accounting practice, he provides consultancy services to small and medium enterprises. He also sits as an elected member to the Local Executive Council of ACCA Singapore.
