The independent advisor appointed by Genting Malaysia to review the voluntary takeover offer put forward by its parent Genting Berhad has recommended the company reject the offer, with analysts suggesting a full takeover may be difficult to achieve given financial impediments that may prevent an improved offer.
Kenanga Investment Bank, the independent advisor in question, concluded that Genting Berhad’s offer of MYR2.35 per share was not fair and not reasonable because it represents a discount of between 32.47% and 37.67% to the intrinsic value of the shares as calculated through a sum-of-parts valuation. This, it explained, is because it fails to adequately price in Genting Malaysia’s existing gaming assets and future earnings prospects from its bid to win a full commercial license for Resorts World New York City, which it is favored to achieve.
Nomura analyst Tushar Mohata pointed out that non-interested directors of Genting Malaysia had subsequently taken heed of the independent advice and also recommended shareholders reject the offer.
While Genting Berhad has, as reported by IAG on Friday morning, increased its stake in Genting Malaysia from 49.44% prior to its initial offer to slightly over 57% currently, Mohata said in a research note that it could be difficult for the company to reach the 75% interest it needs to start a delisting exercise unless it increases its offer price.
“We believe that the MYR2.35 per share offer undervalues Genting Malaysia,” he said. “Our target price of MYR2.70, while lower than the independent advisor valuation due to more conservative multiples used, is still above the last closing price of Genting Malaysia. We also see positive catalysts on the horizon, with the high likelihood of Genting Malaysia winning the New York casino bid.
“While Genting has managed to reach 57% shareholding in Genting Malaysia, we think it is unlikely to reach higher thresholds needed for starting a delisting exercise (~75%) or a minority squeeze-out (~95%) at the current offer of MYR2.35 per share. As a result, we think it will be difficult for the take-private bid to succeed at the current offer price.”
Although Mohata expects Genting Berhad will ultimately reach around 65% ownership of Genting Malaysia, he doesn’t expect the full takeover offer to succeed – mainly because Genting Berhad’s metrics are already squeezed and its ability to substantially increase its offer price materially restricted.
Despite this, the company’s recent on- and off-market moves have already solved some lingering issued around control.
“While Genting Malaysia’s financials were already consolidated due to Genting being the largest shareholder and controlling voting rights, this control was based on accounting standards interpretation rather than clear statutory ownership, and securing majority ownership provides regulatory and accounting certainty for continued consolidation,” he wrote.
“In addition, Genting’s existing management services agreement only covers Resorts World Genting operations in Malaysia, and Genting has no contractual control over Genting Malaysia’s growing overseas businesses and no direct shareholdings or board representation in them.
“A shareholding level of >50% in Genting Malaysia would then prevent questions on matters of control over Genting Malaysia’s overseas assets. If the primary intention was merely to gain statutory control above 50%, it has already been achieved with the current 57% acceptance level.”
