SIAS urges Halcyon to raise offer for GMG, citing unfair valuations

THE Securities Investors Association of Singapore (SIAS) has reiterated its call for Halcyon Agri Corp to consider raising its offer for GMG Global, citing an independent financial adviser's (IFA) finding that Halcyon's offer is unfair. It is also raising questions about valuations used.

Halcyon should "reconsider their offer in the interest of all shareholders of GMG Global", said SIAS, an advocacy group for minority shareholders, in a statement.

Halcyon, a rubber production company now majority-owned by China's Sinochem International Corp, is currently seeking to take GMG private as part of Sinochem's plans to consolidate its natural rubber businesses under Halcyon. Halcyon's general offer of 0.9333 Halcyon share for every GMG share held expires on Oct 21. GMG shares closed at 49 Singapore cents on Tuesday, about 0.875 times Halcyon's closing price of 56 Singapore cents.

Halcyon held a 55.07 per cent stake in GMG as at Sept 23, including acceptances.

After the GMG deal closes, Sinochem also plans to inject its rubber assets in China and Malaysia in Halcyon. Halcyon will issue 280 million new Halcyon shares to Sinochem at 75 Singapore cents per Halcyon share, valuing those assets at S$210 million.

RHB Securities, the IFA for GMG's independent directors, has found Halcyon's offer for GMG to be not fair from a financial perspective. However, for GMG shareholders who believe in the strengths of an enlarged Halcyon group, the deal is reasonable considering the market for the shares, RHB found.

SIAS said that GMG shareholders should "continue to be concerned" that Halcyon's offer is a lower multiple of GMG's net asset value and net tangible assets than the valuation multiples used for Halcyon and Sinochem's rubber assets.

The IFA calculated that Sinochem's rubber assets were valued at 1.64 times net asset value and 1.79 times net tangible asset, compared to 0.45 to 0.89 times net asset value and 0.57 to 1.12 times net tangible asset for GMG. However, while the Sinochem rubber assets reported a S$14.5 million profit in their latest financial year, GMG lost S$14.5 million.

SIAS also took issue with the fact that the IFA used historical market prices of Halcyon shares to calculate the consideration value for the GMG offer, but used the declared transaction valuation of 75 Singapore cents to calculate the consideration value for the Sinochem rubber assets.

"The reasons behind using different share price assumptions should be highlighted and clearly explained for shareholders to make an informed judgment," SIAS said.

SIAS also asked GMG non-executive, non-independent director Jeffrey Gondobintoro to inform shareholders "as soon as possible" about whether he is accepting Halcyon's offer for his 11.8 per cent deemed shareholding. The group also sought more disclosure on plans regarding changes to Halcyon's board, noting that current chief executive Robert Meyer has sold some of his shares in Halcyon, and regarding Halcyon's plans to reduce its debt.

Pointing out that Sinochem is the controlling shareholder of both GMG and Halcyon, SIAS added: "The terms offered by Halcyon to acquire Sinochem's natural rubber assets in this transaction appear to be substantially superior to those offered to the minority shareholders of GMG."

Halcyon has said that it plans to privatise GMG if it can. Halcyon may apply to suspend GMG's shares if GMG's free float falls below 10 per cent. Halcyon may also compulsorily acquire all remaining GMG shares if it receives acceptances for at least 90 per cent of the shares that it did not already own when it made its offer.

Halcyon could not be reached for comment at press time.