An Orange Lesson

The Malta Independent 

 

“The Board of Directors of Maltacom has been informed by the Government of Malta that it intends to sell its majority shareholding in the Company” said a terse company announcement dated 11^th March 2004.

Just as international equity markets were being shocked by the uncertainty propagated by the Madrid bombing this simple announcement, which in reality said nothing new (the Minister had announced government’s intentions to privatise Maltacom in the November 2003 Budget speech), gave a strong impetus to equity prices on the Malta Stock Exchange. Maltacom’s share price gained 25% in the four trading days following this announcement and generally pulled the overall equity market in a positive direction.

Equity prices are meant to be fixed by transparent, efficient and well regulated capital markets and the priority of government as vendor, Maltacom as the subject matter, and the Malta Stock Exchange as the provider of the medium for capital market making, is to ensure the orderly distribution of price sensitive information to the public.

The course of action taken is therefore correct and commendable. It contrasts with the way the Mid-Med share sale to HSBC was concluded shrouded in mystery with the market in such shares suspended for nearly two whole months for no valid reason. It confirms the absurdity of the claim made at the time that because Mid-Med Bank shares were quoted on the Exchange one could not conduct a transparent bidding process as it would have de-stabilised the market.

The Maltacom experience shows that this is not so and the fact that the market is driving the price up is both recognition that the price was substantially undervalued when the uncertainty regarding the negative impact on Maltacom’s profits through loss of monopoly on fixed line and overseas phone business drove the share price unrealistically low, as well as the fact that extracted out of government’s control Maltacom can deliver better value to its shareholders. This market function will in turn enable the Government to obtain a better price for the state asset being sold.

Yet I cannot but help thinking that in proceeding to privatise Maltacom lock, stock and barrel one is putting the cart before the horse in a way which does not help to maximise the true value of Maltacom’s underlying assets.

One of Maltacom’s shining stars is its investment in the wholly owned subsidiary operating the Go Mobile brand. The value of such investment is still shown in Maltacom’s books at original cost and does not reflect either the current performance of Go Mobile nor its future potential.

It would be far more sensible and in the national interest if before proceeding to privatise Maltacom as a parent organisation for the whole Group, one should proceed to privatise through an IPO a substantial minority shareholding in the Go Mobile subsidiary.

This will not only broaden and deepen Maltese equity markets but would put a commercially quoted price on Maltacom’s investment in Go Mobile which will in turn enable the Government to obtain fair value for its remaining 60% of Maltacom.

Such a move would also have a strategic sense from a national point of view. Selling Maltcom as a holding company would give the strategic acquirer full control over the wholly owned subsidiaries and consequently on Go Mobile.

By privatising part of Go Mobile before disposing of government’s stake in Maltacom, one would ensure that Go Mobile operations would remain subject to minority shareholding control just the same way HSBC Malta still has to give proper account of its performance to the 30% private shareholders. It is in the national interest that this will be so especially as the way technology is driving the telecom business some of the Mobile subsidiaries are becoming larger then their parent. Just consider Orange and France Telecom.