It jumps over 20% to record high of RM21.14

KUALA LUMPUR: Shares in Tanjong plc surged to a record high after trading resumed yesterday following a conditional takeover offer from Tanjong Capital Sdn Bhd at RM21.80 per share.

The country’s third-largest power producer, which topped the gainers’ list, jumped more than 20.2%, or RM3.56, to a record of RM21.14. Prior to the takeover offer, Tanjong had been trading between RM17.38 and RM18 over the past two weeks. Year-to-date, the counter gained more than 25.53%.

Based on the closing price, the offer price represented a 3.12% premium.

Last Friday, Tanjong announced that Tanjong Capital, a private vehicle set up by Usaha Tegas Sdn Bhd and its allies that collectively hold 46.9% stake in Tanjong, had offered to buy shares it did not already own for RM21.80 per share, or RM4.7bil in total. Tanjong will also cancel its listing on the London Stock Exchange effective Aug 27.

Tanjong’s privatisation is the second deal launched in a week after T Ananda Krishnan offered RM4.20 per share for satellite service provider, Measat Global Bhd. In March, he made a similar move to buy out Astro All Asia Networks plc.

HwangDBS Vickers Research Sdn Bhd noted that a re-listing was possible upon restructuring of the utility assets controlled by Ananda.

It said the privatisation move was made mainly to facilitate Tanjong’s plan to acquire new greenfield power assets.

HwangDBS said the offer valued Tanjong at RM8.8bil, or 22% premium over the last traded (prior to the announcement) price per share.

“Tanjong’s shareholders should accept the offer given the attractive valuation at 13 times FY11F price earnings (PE) ratio and 2.1 times price to book value (P/BV) are above its historical highs.

“The offer price is also 12% above our sum of parts-derived target price of RM19.50 per share,” it said.

RHB Research Institute Sdn Bhd opined that the privatisation would likely go through, although not without some resistance from investors who want to ride on Tanjong’s long-term prospects in regional power projects, notwithstanding the earnings risk from the tough regulatory environment.

“We note that a demerger of the non-halal gaming business from the potentially high-growth power business would have addressed some of the issues with regards to raising capital from syariah-related funding sources. Another alternative could have been to buy out the gaming and leave power within Tanjong,” it said.

However, the research house believed privatisation was the cleanest option due to the potentially deteriorating valuation for the numbers forecast operator given the uncertain regulatory environment, especially after the recent 2% hike in betting duties.

It also pointed out that a power-only Tanjong would also faced an uncertain future.

Meanwhile, ECM Libra Investment Research expects the offer to be well received given the generous premium offered. “The offer price is even higher than its all-time high share price of RM19.12 on April 6.”

Tanjong had earlier said it intended to double its capacity which translates to about 4,000MW.

“Assuming it will cost US$1 per MW, Tanjong will require US$4bil in financing or a whopping 1.8 times in market capitalisation.

“Lest minority shareholders voice their displeasure at being required to finance the acquisition via rights issues or have their dividends reduced, we believe the major shareholders chose to privatise Tanjong,” ECM said in a report.