KUALA LUMPUR (Dec 1): Kuala Lumpur Kepong Bhd (KLK) has appealed directly to the shareholders of MP Evans Group Plc to accept its increased offer of 740 pence per share “as soon as reasonably practicable” after the UK-based company rejected the offer.
“KLK urges MP Evans shareholders to accept the increased offer as soon as reasonably practicable in respect of their MP Evans shares in order to take advantage of the certainty of receiving very substantially more in cash than the price that MP Evans shares have ever closed at before the commencement of the offer period,” it said.
The Malaysian plantation giant said the increased offer represents a premium of 81% to the undisturbed price of MP Evans’ shares, and also represents a 34% premium over the highest ever closing price of 553.8 pence per share before the offer period commenced.
“The increased offer represents an unprecedented opportunity for MP Evans shareholders to exit their entire stake in full and in cash, in light of the low trading volume in MP Evans shares,” said KLK.
The group added that the valuation by MP Evans in its response letter on Nov 25 was unsubstantiated by relevant market data and current operating conditions.
It noted that MP Evans elected to use precedent sales of Malaysian and Papua New Guinean plantations — which are of an inherently higher value due to differing operating environments — instead of Indonesian plantations in its comparison.
KLK pointed out that the precedent sales of majority stakes in Indonesian plantation estates indicate an average enterprise value (EV) per planted hectare of US$10,285, while its increased offer implies a value of MP Evans’ area per hectare of US$14,100, a 37% premium to previous transactions.
The Malaysian plantation group also pointed out that the US$81 million attributed to MP Evans’ Malaysian properties in the response document is almost double the market value of which MP Evans attributed to them in its latest audited annual report and accounts for the financial year ended Dec 31, 2015, comprising a piece of land valued at US$16 million and MP Evans’ 40% investment in Bertam Properties worth US$30 million.
“The reported book value of MP Evans' 40% interest in Bertam Properties in the 2015 annual report was approximately US$15.1 million.
“This is set against a weak Malaysian property market, with the total volume of transactions for all sectors in the state of Penang (the location of MP Evans' Malaysian properties) in 2015 registering a fall of 15.6% against 2014 and the value of transactions registering a fall of 15%,” said KLK.
It added that MP Evans’ plan to dispose of the stake in Bertam Properties has failed due to the weakness in the Malaysian property market.
KLK also said MP Evans’ intention to increase its dividend payout to improve financial returns for its shareholders was “too little too late”, as the intended aggregate 15 pence dividend for 2016 translates to a yield of only 1.4%.
“KLK would also draw MP Evans shareholders' attention to the fact that the MP Evans valuation represents a high price-to-earnings (P/E) ratio of 79.2 times. Notwithstanding improved performance based on crop increases and higher commodity prices, this P/E ratio would still be high,” it said.
The group also said MP Evans’ board’s actions and omissions do not support its belief in MP Evans’ valuation, as it had not sought to repurchase MP Evans shares at a time when the claimed valuation was far in excess of its market price, which could potentially create substantial value for its shareholders.
“The board of KLK believes that achieving any value per MP Evans share in excess of the increased offer consideration is subject to a high degree of uncertainty and would be unprecedented based on historic trading volumes in MP Evans shares.
“By contrast, the increased offer represents an attractive value proposition at a substantial premium with a high degree of certainty,” it said.