‘Best’ offer made for IJM, but best for whom?

 If IJM’s position relative to Sunway is as modest as Sunway implies, why pursue it with such vigour?

From Ibrahim M Ahmad

With the deadline of 5pm on April 6 looming, Sunway Berhad’s voluntary takeover offer of IJM Corporation Berhad sits on a knife-edge.

Sunway has drawn a firm line. Jeffrey Cheah’s conglomerate says its offer of RM3.15 per share reflects fair value, and is anchored on its own stronger track record. It says the offer is the “best” it can put forward, and is final. Take it or leave it. If not accepted by Monday, Sunway says it will walk away.

There may be some justification in Sunway’s position. Performance matters, and Sunway has the better track record of the two.

Yet, something does not sit right. It sounds like the bidder is trying to create urgency where none exists. Because in any transaction, one basic principle holds. The buyer persuades, and the seller decides. Here the roles appear to be reversed. Why?

IJM, meanwhile, has called the offer unfair and unreasonable. It says the offer price undervalues the company. In fact, one independent adviser claimed last month the offer represented a 50% discount on the estimated value of the shares. Why would any shareholder agree to that, especially since the cash plus shares deal would, in the adviser’s opinion, be no more than what shareholders would get

In a statement on Friday, it called for the offer to be reviewed in its proper “strategic context”, saying various key assets were now moving into their operational phases, suggesting better things to come.

That invites a very basic question. If IJM’s position relative to Sunway is as modest as Sunway implies, why pursue it with such vigour?

At an extraordinary general meeting last week, Sunway’s shareholders overwhelmingly approved the IJM takeover bid, with between more than 99% voting in favour.

An offer to buy 3.51 billion shares for an eye-watering RM11 billion is no small commitment. Such acquisitions are rarely exercises in charity. They are expressions of conviction that the target holds value worth paying for. That, in turn, weakens Sunway’s own “best offer” narrative.

IJM is not lacking in value, and many suggest that RM3.15 per share represents an undervalue. Resistance across the board, including from the company’s directors to major shareholders such as Permodalan Nasional Berhad, signals something deeper.

Then there is the fact that only a small cash component is involved, with the balance paid for in Sunway shares. In other words, IJM’s shareholders are being asked to take up Sunway’s shares, at Sunway’s valuation and on its terms.

That may be worth the risk for shareholders in certain scenarios, but what is the upside for them in this deal? That much is unclear, and puts the current offer under even more scrutiny.

Control is another point that cannot be overlooked. Securing effective control at just over 50% acceptance, without paying a control premium, may be efficient from the buyer’s standpoint.

Yet from the seller’s perspective, it raises a fair question: is IJM being acquired at its proper price? That question has yet to be answered.

Sunway has also urged stakeholders to look past noise, but that noise may very well be what puts the proposition to the test. If a transaction is robust, it will withstand that scrutiny. If it struggles to do so, then something is likely amiss. - FMT

 Ibrahim M Ahmad is an FMT reader.

The views expressed are those of the writer and do not necessarily reflect those of MMKtT.