What Does Zagro Asia Ltd’s Privatisation Offer Mean For Its Shareholders?

Near the start of this month, Zagro Asia Ltd (SGX: Z01), a tiny company not many would have heard of, proposed a voluntary delisting of itself.

The company, with a market capitalisation of just S$76 million, is a manufacturer and distributor of products related to livestock and crop farming. It also has a public health segment focusing on pest control.

Based on Zagro Asia’s announcement (made on 3 November 2015) the management team is planning to delist the company at S$0.30 per share, a 15.4% premium to its last traded price of S$0.26 before the news was released. Zagro Asia’s insiders, who are also the ones intending to take the firm private, currently own about two-thirds of the firm.

If the delisting was put up for a simple vote where the majority wins, it appears that there’s no contest to be made against Zagro Asia’s insiders. But, according to bourse operator Singapore Exchange’s delisting regulations, Zagro Asia would be required to fulfil the following criteria:

(a) the Company convenes an EGM to obtain Shareholders’ approval for the Delisting;

(b) the Delisting Resolution has been approved by a majority of at least 75% of the total number of Shares (excluding treasury shares) held by Shareholders present and voting, on a poll, either in person or by proxy at the EGM (the Directors and controlling Shareholders need not abstain from voting on the Delisting Resolution); and

(c) the Delisting Resolution has not been voted against by 10% or more of the total number of Shares (excluding treasury shares) held by Shareholders present and voting, on a poll, either in person or by proxy at the EGM.”

In other words, Zagro Asia’s majority owners will still require a significant percentage of other shareholders to agree to the delisting before it can happen. So, is the deal fair for minority shareholders of the company?

Mirror on the wall, which deal’s fairest of them all

Zagro Asia was listed in 1996 and from 1997 to 2014, the company’s book value per share has grown at a compound annual rate of 6.9%. That rate of growth had come in higher in recent times as Zagro Asia’s book value had expanded at a compound annual pace of 8.2% from 2007 to 2014. The firm’s price-to-book (PB) ratio however, had displayed a different sort of trend. It was above 1 most of the time before the Great Financial Crisis of 2007-09; the number then started drifting lower with the onset of the crisis and then stayed depressed.

Based on its latest book value of S$0.3458, Zagro Asia had a PB ratio of just 0.75 at a price of S$0.26 (the price just before the delisting announcement was made). The delisting price of S$0.30 is also just 0.8 times Zagro Asia’s latest book value.

The shifts in the company’s valuation multiple might be due to a structural change in its business fundamentals (if any) after the global financial crisis. But, if investors were to look purely at Zaro Asia’s valuation history, the company appears to be “cheap” even at the buyout offer price of S$0.30.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Stanley Lim doesn’t own shares in any companies mentioned.