NO matter what the end game is for Hong Leong Capital Bhd (HLCap) , how a minority shareholder almost single-handedly threw a spanner into the plans of Tan Sri Quek Leng Chan to consolidate his banking business in Malaysia will go down in corporate history.

It will serve as a reminder to others that not all companies can be taken private cheaply and easily, especially those with little free float.

It all started with Hong Leong Financial Group Bhd (HLFG) launching an offer to take HLCap private at RM1.71 per share on Jan 14. As soon as the stock resumed trading after its suspension, closed at RM1.81.

It was easy to see why.

To begin with, the offer price was not compelling, especially for investors who had been holding the shares for a few years now. At RM1.71, it values HL Cap at about one time book when other similar transactions are done at 1.5 times net tangible assets or more.

Secondly, HLFG already held 79% of HLCap before it launched the takeover. At RM1.71, it would only need to fork out RM49.3 million to mop up the rest of the shares. But the problem was getting the investors to sell. There were hardly any sellers because the stock did not have the liquidity.

Thirdly, it was not a conditional offer, meaning that HLFG was prepared to take any amount of shares out there.

It is unlike the situation with Petronas' offer for MISC Bhd, which was conditional upon it getting 90% acceptance. Anything less, and Petronas would walk away from the deal and return the shares to those who had accepted the offer.

What came as a surprise is that HLFG did not improve on the offer, even mid-way through the exercise, when it was clear the privatisation was not going to succeed.

From Jan 15 until Feb 22, which was two days before the expiry of the offer, HLCap was trading at RM1.81 to RM1.98.

If there had been an improved offer, something the market was looking for, the probability of the takeover being successful would have been higher.

But nothing came and HLCap's share price moved to another level — it closed at RM2.31 on the last day of the offer on Feb 25. The counter went to as high as RM3.60 on March 7 before retreating to close at RM3.16 last Friday.

In the meantime, a low-profile property developer, Datuk Dr Yu Kuan Chon of YNH Property Bhd, had emerged as a substantial shareholder of HLCap with 8.7% equity interest.

Yu says he has been a long-time shareholder of HLCap and likes the stock because it is well-managed under Quek — which indicates that he is not out to wage a long-term corporate battle.

After the offer period ended with HLFG gaining only 2.21% acceptance, raising its stake to 81.3%, HL Cap announced that the company had failed to meet Bursa's free-float shareholding requirement of at least 10% public spread — it had only 9.66% as at Feb 28.

HLFG with 81.3% and Yu, who held 8.96% on Feb 25, would have accounted for 90.26% of HLCap.

Hence, HLCap announced that the stock will be suspended from April 15 unless it fully complies with the free float listing requirement — which is something it does not intend to.

However, Yu has been selling down his interest, probably to meet the public float spread. At last count, he held 8.72% of HLCap and is reducing his interest, based on Bursa announcements.

If Yu reduces his stake so that what he holds, combined with HLFG's shareholding, makes up less than 90% of the total share base of HLCap, it would fulfil the public shareholding spread.

If that happens before April 15, should HLCap be suspended? That is something Bursa Malaysia should perhaps clarify.

Also, why is HLFG not selling down to meet the shareholding spread since the stock is way above its own valuation of RM1.71 per share?

HLFG should consider doing so because the valuation of HLCap is now at all-time high.

Technically, whether the stock is suspended or not should not be of concern to minorities who strongly believe the offer price was too low.

But the reality is that to some minorities, a suspended stock is a dampener because it does not give them flexibility to cash out if the need arises, even at valuations which they deem to be unfair.

The objective of taking HLCap private is for the Hong Leong group to house its investment bank under the commercial banking arm, which is the ideal structure preferred by Bank Negara Malaysia.

Eventually, Quek, through HLFG, has to carve out the investment bank and stockbroking business in HLCap to be put into Hong Leong Bank Bhd. There are several ways to do it.

But the underlying factor that will drive the success of a corporate exercise within the group is an offer price that is fair and higher or equivalent to the current market price that will appease the minorities.

Ironically, based on the current shareholding equation, it is the minorities who are setting the price for future corporate transactions involving HLCap and not the majority.

It's a significant change from the past where the majority shareholder sets the price and the minorities lose out.

It's not only with HLCap that Quek has run into obstacles. His privatisation of Guoco Holdings Ltd in Hong Kong has also run into a wall as the share price is well above the offer price.

Two privatisations — one failed and the other almost heading the same way — is rare in Quek's track record of corporate moves. He is best known for selling at a high price and buying assets cheap.

The landmark deal was the sale of his Dao Heng Bank in Hong Kong to DBS Bank of Singapore in 2001 at more than three times book value.

While the going is tough for Quek and the group, the developments in HLCap and Guoco have seen value emerging in these companies, especially the former. It adds a new dimension to takeovers of small and illiquid companies.

The HLCap saga shows that the small investor can have a say provided he or she has fairly deep pockets. All it needs is one minority shareholder to take the lead.

But the threat of suspension of a stock caught in a corporate battle will not help their cause.

M Shanmugam is managing editor of The Edge.

This story first appeared in The Edge weekly edition of Mar 11-17, 2013.