IJM Corp, IJM Land, RM1.98B privatisation deal

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If IJM Corp’s RM1.98 Billion share-swap deal plus cash is successful, IJM Land will be privatised and no longer listed. One less property stock that you can buy from Bursa. IJM Corp is asking IJM Land to consider it and reply by 23 June. I think the objections are likely to be low. If I am the shareholder of IJM Land, I am ok to take the deal. I get 40 sen cash for every two IJM Land shares as well as one IJM Corp share worth RM6.70. This in effect valued IJM Land at RM3.55 per share which is still 11% higher than its last traded price of RM3.20

ijm landOkay, now what should be the fair value for IJM Land? Well according to a report in The Star, out of 12 analysts tracking IJM Land as surveyed by Bloomberg, the consensus price is RM3.71. Based on this fact alone, as IJM Land shareholder, you should NOT sell. Yet, IJM Corp’s shares are valued at RM7.39 by 17 analysts based on consensus. Now do you know why I would be willing to accept this offer? The only unfortunate thing is that I do not own any shares in both IJM Corp or IJM Land. Haha. If you have read my blog, you would have noticed I love property but neutral about property stocks.

Why do companies privatise a listed entity? Why not just expand its business while it is still listed? Well, there are many reasons. I think for this case, IJM Corp wanted to have a much higher control over IJM Land’s direction. One example, if IJM Land would like to buy even more land, what can happen? Well, it can borrow funds from banks, which increases it’s liabilities and perhaps cause its stock price to come down. It cannot raise cash in the market because this may seem to be negative to some shareholders. Lots of questions may arise. The easy way out? Especially when IJM Corp has a huge cash pile? Privatise it.

written on 10 June 2014

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