Privatization : The Good or The Bad ?



Is Privatization Good for Investors ?

You may find two articles/news of privatization in today’s The Business Time ( one is Auric Pacific and the other is Healthway Medical ) which is quite rare and one might be pondering why so many privatization is going on recently in Singapore’s business context.

If you may recall , from SMRT , NOL , Sim Lian, OSIM , CM Pacific, Select Group ,Super Group, Biosensors  ,Eu Yan Sang , Tiger Airways , Lantrovision , Interplex , Otto Marine , etc,,,, and on the pipeline  are ARA Asset Management , Vard Holding .



Sometimes Private Life Is Better

Companies choose to leave the public arena and go private for many reasons. The list is long for the reasons to switch from public to private. “Lower expenses, long-term focus, confidential information, flexibility of corporate affairs, avoiding exposure to securities litigation, avoiding costs of staying public, and recapturing shareholder value,” 

<Image credit: John-Steven.com>



Indeed, public-company CFOs have many reasons to envy their privately-held counterparts. Managers can focus on the long-term performance, rather than quarter-to-quarter earnings. They can have more freedom in realigning benefits packages without extensive disclosure and shareholder push-back. And they can avoid the rigorous requirements from the regulatory like SGX and keep information about competitive information close to the chest.

Most famous people would agree that at some point, fame isn't all it wanted to be and being a public company can lead to the same feelings for its executives. In many ways, it's easier to effectively run a business with fewer shareholders to appease. Private companies don't have to worry about what analyst are saying or deal with tedious regulatory filings. 

In fact, if recent trends continue, it's a fair bet that more and more companies will turn to privatization as a way boosting profits and executing a better business.



Share Price and Privatization

Once privatization are announced and make public , which includes the name of the buyer and the offer price per share. As long as the buyer of privatization is credible, the price of company stock will usually rise to just under the offer. In general, the higher the premium to the current stock price, the more likely the privatization will take place. 

Note that privatization are not the same as a merger of one public company with another. In the case of a merger, the stock price will usually fluctuate more and may even fall if the merger plan doesn't meet the approval of certain regulation or shareholders.



How does privatization affect a company's shareholders?

This quoted from Investopedia : “The reasons behind the privatization of a company vary, but it often occurs when the company becomes heavily undervalued in the public market.

Read the full text here ( click )

Another good write-up about “ Privatization In Singapore’s Stock Market“ by Fool.sg (here )


So, does it mean that most of the company which been privatized here in SGX were “ undervalued “ ? and can you spot the next “ undervalue “ stock which have potential of being privatized ?

Whether privatization is good or bad for shareholders, I’m sure it depend on your entry price and in the eye of beholder.

So far , the privatization of two companies in my portfolio were giving me positive ROI ( Sim Lian Group and ARA Asset Management (still work in progress ).


How about you ? How this privatization wave affecting you and your portfolio ?


Cheers !  😃😃






“The actual risk of a particular investment cannot be determined from historical data. It depends on the price paid.” By Seth Klarman

Comments

  1. "As long as the buyer of privatization is credible, the price of company stock will usually rise to just under the offer."

    Sometimes, even rise ABOVE the offer price.
    Cos the market participants think the buyer will come back with an improved offer.
    Or if they are expecting competing offers from other buyers.

    Congrats on the privatizations for Sim Lian and ARA!

    ReplyDelete
    Replies
    1. Hi TTI,
      That's true..sometimes price coukd shoot above offer price..but buying for such woukd be a bit speculative.. :-)
      Cheers!!

      Delete
  2. Global Logistic may have potential of parties bidding up. At current stock price is around it's NAV, there is good chance of good premium if it takes off. The price push maybe before official final confirmation.

    ReplyDelete
    Replies
    1. Hi Cory,
      Yes , GLP could be one of the potential,,,,as you said ,,, possible offer price of higher than NAV ,,, where current PB value .. is still lower as compare to 5 year average,,
      Cheers !!

      Delete

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