The writer, Professor Mak Yuen Teen, is a professor (practice) of accounting and former Vice Dean of the NUS Business School, National University of Singapore.
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On 22 March, Best World announced that the Board is planning to undertake a delisting exercise by way of a selective capital reduction (SCR), whereby the company will cancel the issued ordinary shares of the company held by all shareholders of the company, other than the EDs and their associates. Under the SCR, 150,147,893 of the 430,445,393 of the issued shares of the company, or 34%, held by shareholders other than the EDs and their associates, will be cancelled. |
Although the company referred to its earlier announcements in July 2022 and November 2021 that it was exploring options for a delisting exercise, the timing of the announcement of the SCR may suggest that it is a defensive response to the requisition.
However, it appears that the SCR has been under consideration for a while since the company said that it had already received the necessary exemptions from relevant rules of the Takeover Code for the SCR from the Securities Industry Council, even though the announcement of the SCR came just a day after the receipt of the shareholder requisition.
 "The company’s share price would arguably have been depressed by the excessive remuneration and lack of dividends over many years. "The net asset value would have been considerably higher if the remuneration for the EDs was closer to their peers." -- Prof Mak Yuen Teen |
If it was intended as a defensive measure, the proposed SCR appears to have worked.
On 1 April, the requisitioning shareholders withdrew their requisition letter, although they reserve the right to issue the requisitions again in the future.
On 3 April, Best World provided further details on the SCR.
After conserving cash by not paying dividends for nearly six years, the board decided that it is now in the company’s best interest to use $375.37 million of the $608.07 million in cash to buy out all the minority shareholders.
The board did not explain why other options to delist the company were not considered.
While the proposed share price of $2.50 compares favourably with recent share prices prior to the delisting announcement and the net asset value of the company, with premia of over 40% and 82% respectively, the company’s share price would arguably have been depressed by the excessive remuneration and lack of dividends over many years.
The net asset value would have been considerably higher if the remuneration for the EDs was closer to their peers.
For example, if Best World had paid the EDs at the median of ED remuneration to profit before tax for the peers used in my analysis for each year from FY2019 until FY2023, I estimated the total remuneration for the EDs would be about $110 million lower over those five years.
Profits and therefore net asset value would be considerably higher.
Coincidentally, this is about the same amount as the dividends shareholders would have got if the company had maintained its dividend from FY2019.
| Minority shareholders may well decide to accept the delisting offer because the alternative of continuing to be saddled with shares with little liquidity, excessive ED remuneration and no dividends may be difficult to stomach. The cover of Best World’s latest annual report says “In the Company of Beauty” but it has been pretty ugly for the company’s minority shareholders. |
For the full article, click Best World: Ugly Time for Minority Shareholders
