Thursday, April 24, 2008

Berjaya Sports Toto May Breach Barrier

On 18 February 2008, the Biz News section of the New Straits Times newspaper (page 41) talked about Berjaya Sports Toto Bhd staging a technical rebound (on its share price) on market talk of a major shareholder taking private the company.

The company had then made annoucement to clarify that after due and diligent inquiry with its directors, major shareholders and all such other relevant persons familiar with the matter of the Company, none of the aforesaid has any plans to privatise the company, as reported in the said news article.

On 22 April 2008, the rumour of privatisation resurfaced with Berjaya Land Berhad's intention to spend up to RM250 million to buy more of Berjaya Sports Toto Bhd shares from the open market. The intention was seen to be a prelude to the privatisation of the latter.

Now, what is a privatisation?
Main shareholders bring a company for listing by issuing and selling new shares to the public. The price of these shares create wealth to existing owners because the public or new investors are willing to pay for the new shares. Privatisation is the opposite of a listing. The major shareholders is now willing to pay the public investors a price to buy back all the shares that the major shareholders do not own.

Why privatise?
There are few reasons for privatisation and a common reason is that the major shareholder(s) feel that the company is undervalued by the investors. Hence, they would like to take the opportunity to purchase back all the shares not own by them and delist the company.

Impact of privatisation to our investment?
In most cases and especially if the company is a favourite among investors, the major shareholder(s) need to pay a price higher then market value in order to be able to buy the shares from the public/investors. The public/investors want to be compensated for letting go the shares of the company they liked. If that materialises, our investment can be realised at a higher valuation than our cost of investment and of course enabling us to register a profit.

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