Big Dog’s barking up the wrong tree with FGV Pontian Plantation deal

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This blog came about after I read Big Dog posting on FGV. I wrote a reply to his post and it was moderated and posted a little later.

So I decided to set up my own blog to talk about things that interest me. I’ll start with my reply to Big Dog original article that got me going…

I have been a fan of Big Dog for many years. While I sometimes disagree with his stand, I was never move to counter his thoughts, until now. I find his argument on Pontian Plantation off the mark.

I for one found it admirable that Felda have the courage to take on the targeted acquisition, even though it is helmed by a well know DAP leader. But corporate leaders often travel in the path less traveled. I believe that the present offer by FGV is made by a willing buyer and we hope that it will find a willing seller.

In this case, FGV has only made an offer and Pontian has not responded if they are going to do the deal. If the deal is sweet enough, Pontian Plantations may change hands.

On the other hand the seller may choose not to sell to Felda, in which case Felda may have to further sweeten the deal. Felda have already shown their hands by purchasing TSH Resources as reported by the Malaysian Reserve on, 19 July 2013. This exercise is in line with FGVH plans to further expand its oil palm plantations as reported earlier in the local exchange. At this stage FGV owns 23.81% of Pontian Plantation.

Interestingly just a year ago, TSH Resources made an offer of RM90 per share for the 6.94 million shares or 80.28% of Pontian share it did not own, for a total deal value of RM625 million. The deal fell through when TSH Resources had only managed to increase its shareholdings from 8% to 20.2%. The question now: will Felda succeed where TSH Resources has failed?

On closer examination, TSH Resource actually managed to amass some 12.2% of shares in the exercise, perhaps from minor shareholders wishing to cash out. Unfortunately the major shareholders were unmoved.

With this particular deal, what analysts think has no bearing for the seller. It is highly likely that Chairman Chen Man Hin may want to do this transaction, given the sweet deal. If he does, it will be a major moral victory for FGV, UMNO and even PM Najib.

TSH tried to take over Pontian with a RM 90 per share and failed. Because so much is at stake here, FGV have sweetened the deal by another RM 50 per share, making it financial foolishness for the owners of Pontian Plantations not to accept. Sometimes, to win in business, one has to be highly irrational, not rational. Once the company switches owners, money can be generated via other ingenuous methods.

Of the remaining 76.19% of the share, Chairman Chen controls only 65.6%. That means there is still a large pool of minority shareholders controlling some 10.59% that is not in Chairman Chen hands. These folks may be willing to cash out at this fabulous RM 140 offer.

Big Dog pointed out that when TSH Resources offered to take over Pontian Plantations last year, the CPO was at RM 3,200 per ton. The current proposed offer of RM 140 per share today is at the point where the CPO price is RM 2,300 per ton.

Big Dog thinking is too narrow, looking at crop prices which are cyclical in nature. Felda is buying into the company, the land, asset and an on-gong profitable business. Land prices can only go up in the long run and the purchase can create a moral victory for FGV and Chairman Isa.

It is interesting to note that both TSH and PUPB plantation fields have been neighbours since the 1990s, sharing the same access road in Lahad Datu, Sabah.

Perhaps Felda is looking into the possibilities of merging TSH and PUPB once the deal is signed. The benefits of the merger are many, included economies of scale in both companies’ supply chains, logistics, distributions, finance and employee training.

Felda must also be targeting TSH’s biotech Wakuba high-yield clone, a technology developed by TSH’s biotech centre in Sabah. The Wakuba ramets are said to produce around eight to 10 tonnes per hectare of palm oil yield, compared with the current industry average of four to six tonnes.

When Felda is able to do the deal, it would be able to reap benefits from TSH’s biotech Wakuba high-yield clone…’ especially so if they control the country’s largest collection of palm oil plantations.

If Felda is able to do the deal, a merger with TSH will result in increased planted plantation land bank size and eventually lead to a higher fresh fruit bunch output.

Big Dog observes that these Chinese businessmen failed to sort out their own affairs on the own. He thinks that FGV is absolving Kelvin Tan from his duties and commitments in BOD of Pontian Plantations by taking up all of the 23.8% holding but without BOD and management control.

The way I see it, far from absolving Kelvin, FGV sees an opportunity to gain a foothold into a highly desirable prize called Pontian Plantation. Taking over Pontian Plantation from Dr. Chen may effectively remove him from the industry. This is a highly desirable scenario for some quarters. FGV has sweetened the deal, to make it financial foolishness for Dr. Chen and the owners of Pontian Plantations not to accept.

If FGV fails to persuade Pontian Plantation to sell, the winner would be Kelvin Tan, but the game has not concluded as yet.

This exercise must be viewed as a wholly business transaction. It matters not who the sellers are. If the purchase is within Felda’s corporate objectives, then the question is, why not?

When Isa succeed in this exercise, he will be viewed as a visionary threading in wolf’s territory.

3 thoughts on “Big Dog’s barking up the wrong tree with FGV Pontian Plantation deal

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