Surprisingly, at Tanjong plc’s last annual general meeting, executive director Ralph Marshall was extremely quiet. Marshall who is well known as T Ananda Krishnan’s point man for running the tycoon's companies would normally have a few things to share with shareholders, apart from its chairman Robert Cheim. But that was not the case  two weeks ago.

The meeting lasted longer than usual, as some shareholders quizzed the company more than usual on one of the resolutions that was to be voted on. Every resolution was eventually passed.

Over at Usaha Tegas Sdn Bhd, top executives were exasperated as Ananda had been spending the past few weeks in the office working on a project that only a few were privy to. His presence, which was longer than his usual one- or two-day stop-over had a few of them stressed.

Normally, the low-profile tycoon spends most of his time in the South of France where he lives with his wife and young daughter.

Ananda has two other children from his first marriage to a Thai princess. But there has been no indication whether any of his children will take over from the 72-year-old  who made his fortune as an oil trader and created two household names in Malaysia — Astro and Maxis.

Ananda is one of the few businessmen who moved out of the old economy,  oil trading and property development, to the new economy of telecommunications and entertainment.

“He is way ahead of his time and the rest of the crop,” says a banker.

The reclusive billionaire from Brickfields had his early education in Victoria Institution and was a Colombo Plan scholar. He did his Master in Business Administration at Harvard where he met the Arabs who would give him his break in the oil trading business.

In the 1970s, he was roped in by Tengku Razaleigh Hamzah to beef up Petronas' trading business. Ananda was a director of Petronas for two years in the mid-1980s.

But by that time he had caught the attention of former prime minister Tun Dr Mahathir Mohamad who later handpicked Ananda to lead the development of one of Malaysia’s icons — the Petronas Twin Tower and the surrounding KLCC development.

Ananda paid RM110 million for the former Selangor Turf Club site. On top of that, a premium of RM320 million was paid to Dewan Bandaraya Kuala Lumpur to convert the status of the land for the development of KLCC.

The vehicle to develop the land was Sri Kuda Sdn Bhd and Ananda roped in Petronas for the job, selling a 51% stake in the company to the national oil company for RM681 million in the 1990s. The company was eventually renamed KLCC Holdings Sdn Bhd.

His biggest coup to-date is said to be the sale of his 49% stake in KLCC Holdings Bhd to Petronas in 2002 for an undisclosed sum. Industry officials estimated the sale then to be worth about RM1.2 billion. The proceeds were reportedly used to beef up Measat and Maxis.

“That was probably his biggest pay day,” says the banker. “The series of corporate exercises in the following years, including the privatisation and re-listing of Maxis, the privatisation of Astro, Measat and now Tanjong are nothing compared to the KLCC deal.”

Why privatise now?
What most people knew was that the privatisation of Measat was in the works. That was an open secret and most investors who have been following Ananda’s corporate moves over the past few years had switched to Measat after Astro was privatised in June this year.

But the best-kept secret was the privatisation of Tanjong.

Last Wednesday morning, top officials were shocked when told that the company's shares were to be suspended as the major shareholder had an announcement to make. The suspension came together with that of Measat.

Two days later, came the announcement. Usaha Tegas was privatising Tanjong at RM21.80 per share via Tanjong Capital Sdn Bhd (TCSB), a special purpose vehicle set up by Usaha Tegas and parties acting in concert. The offer is 22% higher than Tanjong’s last traded price of RM17.88.

The offer values Tanjong at RM8.8 billion or 2.06 times price-to-book value based on its net asset per share of RM10.59 as at April 30. RM21.80 is 12.6 times Tanjong’s FY2012 consensus forecast EPS.

The offer of RM21.80 per share translates to an implied enterprise value over Ebitda of eight times. 

The reason for Ananda to privatise Tanjong is not hard to fathom. It is an undervalued stock.

“TCSB believes Tanjong’s share price does not reflect its fundamental value. Tanjong has a wide range of businesses from power to gaming, it suffers from a conglomerate discount valuation,” says Datuk Seri Nazir Razak, group chief executive of CIMB Group, at a press conference announcing the privatisation deal.

CIMB Investment Bank Bhd and RHB Investment Bank Bhd are acting as joint financial advisers to TCSB. The international financial advisers are Standard Chartered Bank and RBS Asia Advisers (M) Sdn Bhd.

With close to RM1.5 billion in operating cash flow, it is a stock that easily draws in the financiers. Any bank in town would not bat an eyelid to advance borrowings of up to RM7.5 billion to the shareholders to undertake a leveraged buyout.

Note that Tanjong’s break-up value may be more than its offer price of RM21.80 per share. Based on PER of 14 times on just its power, gaming and leisure businesses’ earnings, and Menara Maxis, the break-up value works out to RM24.32 per share (see table). 

Having said that, valuation methods and assumptions differ from one analyst to another. Based on Bloomberg data, the most aggressive analyst in town values Tanjong at RM21.50, just 30 sen shy of TCSB’s offer.

“It is the most efficient way for an investor to exit the stock. You don’t have to worry about liquidity or queuing to sell the stock,” says an institutional investor.

Furthermore, investors should know that when the majority shareholder has plans to privatise the company, it won’t be doing much more to add value to the stock. This adds weight to the option of accepting the buyer’s offer, he adds.

Tanjong’s undervaluation is something that Ananda has known all along. If he wanted to take it private, he could have done it anytime. Over the past two years, Tanjong reached a low of RM9.90 on Oct 29, 2008.

Why didn’t he privatise Tanjong then or as recently as nine months ago when its stock price was lower? Why take one of Malaysia’s most valuable stocks private now?

Nazir says this is the right and conducive time to do both the Tanjong and Measat deals.

“What may be seen as cheaper may not be fairer to the shareholders. What is being tabled by the offerer is an attractive deal, and there is also the interest of the minority shareholders,” he says.

“There is no shortage of interest in Tanjong shares and its assets. A lot of people come to them with proposals to buy their assets. But Ananda is one that does not easily let go off an asset,” says an official familiar with Tanjong.

According to the official, one reason why Ananda is privatising now is because he does not see much growth in the traditional business of Tanjong.

“Ananda is one person whose targets are lofty. For him a steady business, with constant cash flow but facing a plateau in growth is not good enough. He wants to see constant growth and it is something that is hard to come by in Malaysia,” says the official.

Dissecting Tanjong’s business, the growth is coming from overseas, particularly the power division. Some 40% of revenue and 44% of operating profit comes from its overseas operations.

Domestically, its number forecasting operation is being hit with competition from Berjaya Sports Toto and Magnum Corp. Apart from keen competition, the government has also slapped duties on the gaming operations, cutting margins further.

Also, its entertainment business (managed under TGV) is also facing competition from PBB Group’s GSE cinemas. 

What next for Tanjong ?
At the press conference, the investment bankers and Tanjong officials kept mum about whether the power, leisure and gaming businesses might be relisted in the future.

“The first step is to achieve the status of a private company and only then, to look at the possibility for some or all of the businesses coming back to the market,” says Nazir.

Observers say, based on what Ananda has done with Maxis, it is possible that investors aren’t seeing the end of Tanjong’s various businesses as an investment option. The same goes for Measat.

A foreign listing cannot be ruled out either given the geographical spread of Tanjong and Measat’s businesses.

Ananda’s recent spate of deals seem to indicate that he is streamlining his businesses or “compartmentalising” them as a means of ensuring their continuity, say market observers.

Of course, one of the rationales given by the investment bankers for Tanjong’s privatisation is that in its present structure, it does not have the capacity to achieve its lofty ambitions of becoming a global player.

High borrowing costs in its present form will translate to medium-term earnings volatility. A privatised structure allows it to seek out long-term capital providers, whereas as a listed vehicle, minority shareholders are subject to the risks that come with Tanjong’s expansion plans.

Then there is the issue of Tanjong not being syariah-compliant because of its gaming business. While that leaves other investors with one less stock on Bursa Malaysia, some may hold on to the hope of future listings of Tanjong’s businesses, if not locally, then abroad.

This article appeared in Cover Story page, The Edge Malaysia, Issue 817, Aug 2-8, 2010