SINGAPORE (July 8): Dissenting minority shareholders of Indofood Agri Resources are probably rejoicing after the recent failed takeover attempt by controlling shareholder Indofood Sukses Makmur. However, the dust has not settled. ISM appears bent on tightening its grip on IndoAgri — by accumulating the company’s shares on the open market.
On July 1, ISM bought about 56.2 million IndoAgri shares for 32.49 cents apiece. On July 2, 3 and 4, it bought another 8.03 million shares at 32.5 cents each. This raised its direct interest in the company to 7.44%. Together with its deemed interest of 71.51%, ISM now has a total interest of 78.95%.
The transactions took place after ISM’s takeover offer lapsed on June 25, according to a filing by IndoAgri on the same day. In particular, the level of acceptances had lifted ISM’s potential stake to 88.08% in the company, which is short of the 90% threshold at which the company would have lost the necessary shareholding spread to remain listed. As a result, IndoAgri is still listed and traded on the Singapore Exchange.
While it is not immediately clear if ISM intends to accumulate more IndoAgri shares on the open market, it now needs fewer shares to breach the 90% threshold. In particular, it will have to acquire more than 156 million shares, compared with more than 216.6 million shares when it first made its takeover offer a few months ago.
Alternatively, ISM could make an offer again — but at a much higher price. Earlier, it had raised the offer price from 28 cents to 32.75 cents a share and extended the offer deadline. But it failed to win over minority shareholders, as the revised higher offer price was still a paltry 0.41 times IndoAgri’s book value of 79.8 cents as at March 31. A much higher price than that might just be enough to entice a sufficient number of minority shareholders to part with their shares.
The big question now is whether minority shareholders should hold on to their shares — with or without a new offer. Minority shareholders should bear in mind that IndoAgri’s performance in 1QFY2019 ended March 31 was not exactly impressive.
While the company’s revenue grew 5.3% y-o-y to IDR3.36 trillion ($322.8 million) on the back of strong sales, gross earnings declined 29% y-o-y to IDR461 billion, mainly owing to lower palm product prices. This, in part, led to a net loss of IDR57.8 billion, compared with earnings of IDR49.8 billion a year ago. Balance sheet-wise, the company had a net debt position of IDR9.37 trillion as at March 31.
The outlook for crude palm oil prices looks challenging, so it will be tough for the company to improve its performance. IndoAgri, in the notes accompanying its financial statements, said the economic uncertainties arising from the US-China trade tensions are putting price pressure on agricultural commodities. “CPO prices will remain volatile with demand projected from key import markets like China and India, together with the relative price of crude oil, which affects biodiesel demand.”
