Cogent minorities unhappy with Cosco's offer

Singapore

COSCO Shipping International's S$488 million cash takeover bid for Cogent Holdings may seem more or less "in the bag" as it can count on the backing of four major shareholders - they collectively own just over 84 per cent of Cogent - but it has not gone down well with a group of minority shareholders who feel they deserve more.

In a protest letter sent to Singapore's shareholder watchdog group and copied to the stock exchange regulator over the weekend, a minority shareholder of Cogent, Chong Khai Bin, deemed the offer as "unfair" and "too low", and feared it could set a precedent for other companies to follow.

When contacted by The Business Times, Mr Chong said he represents at least 10 unhappy minority owners who together own some three million Cogent shares.

Their main beef: The S$1.02 a piece price tag that Cosco is offering for the buyout of Cogent, which is comparatively lower than the recent buyout of Poh Tiong Choon Logistics (PTC Logistics), a company with similar business as Cogent which they view as "less dynamic" on a price-earnings multiple basis.

In September, PTC Logistics received a buyout offer from a private vehicle backed by the firm's chairman Poh Choon Ann at S$1.30 per share or 23 times price earnings multiples. On the other hand, Cosco's bid values Cogent at a 12-month trailing PE of nearly 15 times.

Below average

In the letter to the Securities Investors' Association of Singapore chief David Gerald, a copy of which was obtained by BT, Mr Chong pointed out that based on Cogent's annualised pre-tax profit of S$20.2 million for the first half year ended June and based on a PE of 20-25 times, shareholders should be paid S$1.89 per share on average. This also takes into consideration the earnings upside from the company's Jurong Island Chemical Logistics Facility (JICLF) which is coming onstream.

"We, the minority shareholders, feel that we have been greatly shortchanged by 87 Singapore cents (S$1.89 - S$1.02)... it's an "oppression of the minority," wrote Mr Chong.

"We fear this will set a precedent for other companies to follow. We are dismayed that Cosco firmly announced that it will not revise the buyout offer price and that the major shareholders, holding collectively 84.33 per cent of the company shares, have given irrevocable undertaking to accept the offer.

"As it is also announced that Cogent will be delisted, minority shareholders will be left high and dry with an unfair buyout price and no recourse."

Backing that view is Phillip Securities Research analyst Richard Leow who described Cosco's offer for Cogent as "uncompelling" in a note issued on Monday.

The offer for Cogent, he said, "does not adequately reflect the huge potential" from the JICLF project which could potentially double Cogent's warehousing capacity from the existing integrated logistics hub.

He expects profit margin at the new facility to be higher as it will be handling dangerous goods and the company to chalk up an over 40 per cent growth in net profit in FY19.

That coupled with China Cosco's plans for Cogent to be a regional logistics player, the future for Cogent now looks even brighter, he continued.

The deal however may be as good as done. Cosco has received irrevocable undertakings from four individuals - Cogent's executive chairman and his wife, the chief executive, and the managing director - who collectively hold 84.33 per cent of the company.

In other words, Cosco needs only 5.67 per cent acceptance to garner the 90 per cent required to compulsorily acquire all Cogent shares and delist the company.

"Becoming a subsidiary of Cosco is inevitable and delisting faces a low hurdle," surmised Mr Leow.

Cogent's stock jumped 2.5 Singapore cents or 2.5 per cent to finish at S$1.015 on Monday when it resumed trading following a halt last week pending the announcement.

Record high

Noteworthy is that back on Sept 20, the company had drawn a trading activity query from SGX when it had shot up by nearly 12 per cent or 10 Singapore cents over three trading days. Four trading days later, it would hit a record high of 99.5 Singapore cents.

For Cosco, which is turning over a "new leaf" after divesting its shipyard business earlier this year to parent China Cosco Shipping Corp, things may be more clear cut.

Describing the disposal as a bailout by Cosco's parent, DBS Research analyst Ho Pei Hwa said that post-transaction, Cosco will shift from being in net debt to sitting on a cash hoard of S$300 million, which bodes well for acquisition of new businesses.

Swooping in on Cogent adds to that promise.

"As a leading integrated logistic service provider with over 40 years track record, the acquisition of Cogent paves the way into a new core business, expanding parent's existing network in North Asia to South-east Asia, riding on government's One Belt One Road initiative," said Ms Ho, somewhat echoing Cosco's own rationale for the buyout.

But clearly, not everyone is pleased.

"It is really an unusual takeover," said Mr Chong.