Is the exit offer of RM3.70 by the offerors fair to dissenting shareholders of BERNAS?

I have done a sum-of-part (“SOP”) modelling to work out the indicative valuation for Padiberas Nasional Berhad (“BERNAS”). It is using discounted free cash flow for equity method for the concessionaire core business and PE multiples for the investment in Gardenia bread and flour business. According to the SOP method, the indicative valuation of BERNAS should be RM6.15, which is 1.66 times higher than the offer price of RM3.70, or the offer price is just taking a deep 40% discount to its value.  I have been quite conservative in applying variables in the model with a lower perpetual growth of merely 2%, should the growth higher the indicative valuation could be more than RM6.15.

Valuation Matrix

		Perpetual Growth Rate (%)
		1%	2%	3%	4%	5%
Discount (%)	0%	5.50	6.15	7.03	8.30	10.31
	10%	4.95	5.53	6.32	7.47	9.28
	20%	4.40	4.92	5.62	6.64	8.25
	30%	3.85	4.30	4.92	5.81	7.22
	40%	3.30	3.69	4.22	4.98	6.19
	50%	2.75	3.07	3.51	4.15	5.15
	60%	2.20	2.46	2.81	3.32	4.12

So is this fair for dissenting shareholders to accept such a low offer of RM3.70 which is endorsed by the so-called “independent” adviser, i.e. Kenanga Investment Bank to be ‘fair and reasonable’. Since the core business of BERNAS is a monopoly business based on concessionaire which contributed 90% of the indicative valuation, paying hefty dividends and its cashflow can be forecasted due to the nature of the business, why not using a discounted cash flow or discounted dividend model instead of using simple relative valuation methods like P/E or P/B multiples? Is it because all these discounted models will derive higher valuations that would expose the unfairness of the offer of RM3.70?

It would be more worse to dissenting shareholders even if they reject the exit offer, as the offerors who hold more 86% of BERNAS shares will vote to delist BERNAS which only require 75% vote in value on those who present in the EGM. Dissenting shareholders will end up either holding unlisted shares or their shares would be even compulsory acquired if the offerors acquired 90% shares of the disinterested shareholders. 

This is a great oppression on minority shareholders’ rights of getting a fair exit!

Find attached with the valuation model below:

Discounted Value (Bernas)

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