Sunday, May 06, 2007

The case against Maxis (taken private)

As most of you know Maxis will taken private (note the term will) and Binariang has already put up the offer on the market. Depending on how you see it the premium is quite good. However I don't agree to this and will also be quite surprised should any investors with long term outlook agrees to it.

Maxis is quite a gem in the KLSE. All the usual things profitable, stable, market leader etc etc etc. However, the one thing that really make maxis stands out above others is that it is a well run company, well respected by the industry and very very professionally run. It it also at a stage where it is just collecting kazillions of cash. Sits there with minimal outlay and collecting cash.

There's one more trump card up its sleeve, its foreign venture. Maxis foreign venture is bearing fruits and should be yielding good attractive return in the next few years. Thus the perfect blend of strong cash cow parents with growth potential from its subs. What's more the parents raking in so much money any capex outlay needed by the subs can be internally generated.

As such, should I'm looking at the long term this is the company that I'll be betting on. Stable, good future prospect, with those excess cash some great dividend sure is coming bla bla bla bla bla.

Suddenly it was announced that it'll be taken private. Now, now. Why lah? I do not know exactly what is the reason however I've got good reason to go against it.

Below are some of my reply somewhere and being the lazy bum that I am I just copy and paste lah. There are other considerations and figures too. But I'm a bit too lazy lah. Maybe after this lah. Me chasing deadline

If I'm one of the shareholders I won't agree to it. 20% premium might seems a lot but when consider that
1. its a cash cow now & and more money coming in from other ventures
2. With more money coming in it should be time for maxis to come up with a proper dividend policy
3. relatively low capital outlay in the future

20% is a bit too low. when you consider the future dividend that you gonna lose it just won't cut the mustard.

also, when consider you're with maxis during the riskier infancy stage to finance the capex and about to enjoy the benefit, suddenly he wants to take things private and enjoy it all by himself.

that's not fair.

When you make an investment in a company you see for the future and in the future is a stage like today. A Cash cow and stable dividend yielding investment. (which is why you use DCF as tool in valuation)

and AK's move just cut short this forecast

*show the finger


Well, here's the thing they need the 3/4 rule to start this thing. 3/4 of the shareholders to agree on this and they can proceed. As of last thursday/friday they already got about 60% and need just another 15%. So maybe it is not up to us anymore and like it or not they'll go ahead with this thing.

However, I'm looking at it from an investor POV. As such the minority shareholder watchdog group should not keep quiet. Must make noise and to prompt UT/binariang to increase the offer.

AK (or rather UT) might believe given the future cashflow potential, Maxis is currently undervalued by the market. However I would like to point that they are not exactly generous with their dividends either.

The phase where people make money based on capital appreciation ie increase in share price is over (typical in any company cycle). Maxis is in the cash cow level(at least in Malaysia), not a star with outstanding growth potential anymore (this is the BCG matrix). So they should do as per all cash cow companies to prep up their share prices.

Here's where I think it is unfair.
They're in the Cashcow phase and other foreign subs are in the Star phase. There for they can easily finance these foreign ventures via internally generated funds.

With that in mind, AK's getting 2 things out of this
1. a cashcow in maxis
2. a fast growing star in its other foreign venture.
and no. 1, can easily finance the other.
and given the future potential of the no. 2, it can be said that even with 20% premium, AK got maxis on the cheap.

*waiting for some minority shareholders watchdog group.


With the above I'd be surprise should some long term investor agreeing to this. Sure a bird in hand is better than 2 flying right in front of your eyes but what then you want to substitute maxis with? TM?


*Yeah! I know there's Digi but not quite the same innit?


Blogger Will said...

it does seem like the trend innit? more and more companies making profit are getting delisted

11:04 PM  
Blogger Stupe said...

some of my friends are making good income from selling their share in the company...

3:59 PM  

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