KINGBOARD COPPER FOIL: What Is a Fair Buyout Price?

"Lotustpsll" contributed this article to NextInsight

The latest update by Kingboard Copper Foil on Excel’s buyout offer was released on 5 March as follows:

Electrolyzed copper foils are the main product of Kingboard Copper Foil, which operates out of Fogang and Lianzhou in Guangdong Province. Photo: Internet“The Board will, in due course, appoint an independent financial adviser (the " IFA") to advise the directors of the Company (the " Directors") who are regarded as independent for the purposes of the Offer under the Singapore Code on Take-overs and Mergers ( the " Independent Directors"). A circular ( the "Offeree Circular") containing, inter alia, the advice of the IFA and the recommendation of the Independent Directors on the Offer will be sent to Shareholders within fourteen ( 14) days from the date of the despatch of the Offer Document to be issued by or on behalf of the Offeror”.

Kingboard has 2 independent directors – Ong Tiong Wee, 76, a chartered accountant with 12 years’ experience at 2 of the top 4 international auditing firms, and Chim Hou Yan, 74, a lawyer and a Justice of Peace who was awarded the Singapore Public Service Star (Bar) (BBM (L)) in 2015. 

They are expected to act independently in reviewing the IFA recommendations, bearing in mind the ongoing Bermuda court case on oppression of minority rights in Kingboard Copper Foil. This case is not an ordinary buyout offer. Hence, the appointed IFA will also bear a heavier burden in discharging its  fiduciary too.

What would constitute a fair buyout price? Going by accounting principles, the starting point is Shareholders’ Equity (SE).

Shareholders' equity is equal to a firm's total assets minus its liabilities and is one of the most common financial metrics employed by analysts to determine the financial health of a company. Shareholders' equity represents the net value of a company, or the amount that would be returned to shareholders if all the company's assets were liquidated and all its debts repaid.

I have extracted the relevant data from Kingboard Copper Foil’s recent report for the financial  year ended 31 Dec 2016 (see table).

Excel's buyout offer of 40 cents has ignored the Shareholders’ Equity and only represents a slight increment over the Group’s cash balance. Other assets of the Group are excluded from the buyout offer which represents a 40% discount to SE per share.

This offer is clearly unjust and against the interest of the minority shareholders.

The many people who have expressed their views in other forums are all disappointed with the offer price and the attitude of the Controlling Shareholder (Kingboard Laminates which is using its vehicle Excel First Investments for the buyout offer). (See: KINGBOARD COPPER FOIL: Investors turn up their noses at 40-c offer price)

The IFA and the Independent Directors should object to this offer outright.

In my view, the buyout formula should include SE per share, plus the goodwill of the business plus the lost earnings (due to Harvest contract). Perhaps, the decisions by the Bermuda Appeal Court could have an immediate bearing on how this matter can be resolved justly and expeditiously so that the rights of the minorities can be protected.