9th June 2006
The Malta
If you are feeling confused about the conditions included in the sale
of the government’s majority equity stake in Maltacom,
do not despair. You are in good company.
Although the process of this privatisation has been fair and transparent, I am not convinced that, from a price point of view, we should not have done better. The argument that the price of Lm1.55 per share is at a slight premium to international valuation of similar companies, based on profitability criteria, indicates that no premium was included in the price to take account of the substantial assets that are not essential to the company’s profitability.
The most obvious candidate here is Maltacom’s substantial liquidity, including substantial cash balances and receivables. Should not these have been distributed to present shareholders before the share transfer was concluded?
Following criticism that valuable real estate, not essential for the company’s core business, should not have been included in the privatisation package, given that the price tendered was based on profitability criteria and not asset values, revelations were made in parliament this week that sounded like an after-thought to parry such criticism.
The minister responsible for Maltacom’s privatisation explained that the said property was, in fact, not included in the privatisation package, as the government had reached agreement with Maltacom to acquire such real estate and in compensation would be granting Maltacom full title to property used for its core business that is currently rented or used on some concession title from government.
This to me sounds like a “tbazwira” (bungling) bigger than those that government spokesmen like to attribute to the Opposition Leader. These are serious matters and cannot be treated with the off-handedness of an after-thought.
Maltacom’s privatisation was a long drawn out process, as it have should been for the sake of transparency and governance. There was all the time in the world for such matters to be fully planned, approved and executed before the actual privatisation.
Government was not the sole owner of Maltacom. Minority shareholders have every right to be informed of what exactly has been agreed and to satisfy themselves that their interests as co-owners of Maltacom have been effectively safeguarded.
As an outgoing shareholder, the government has a clear conflict of interest in negotiating such a property exchange and it is therefore important for the sake of acceptable standards of governance that such a property exchange deal be conducted under the gaze of the general public and the private shareholders.
I would even dare suggest that, given that such a property exchange is not in the ordinary course of business of the company, there was an obligation to seek approval for the matter from shareholders at a general meeting. At such a meeting, small shareholders would not only have full access to information but would have the opportunity to comment and express an opinion on the transaction.
Has the proposed property exchange deal short-changed the minority shareholders who could have been rewarded better and more fairly if the property was disposed of in the open market? The minority shareholders have a right to ask these questions and the board of directors has a duty to give full and clear answers.
What amazes me is that when the minister concerned gave this skimpy information in parliament, the Opposition only found fault with the deal on the question of parliamentary technicalities.
They took the minister to task for not seeking prior parliamentary approval for this property exchange, given that parliamentary rules demand that concession of property rights – as proposed in the property exchange deal with Maltacom – are subject to parliamentary approval.
It is true that the minister sounded brash and arrogant when arguing that parliamentary approval could be considered as mere rubber-stamping, given that the government commands a five-seat majority in parliament. He could easily have said the same truism in a more technically correct manner by stating that the deal was subject to parliamentary approval and that parliament would be given every chance to debate and decide the matter. All the other assumptions could have been left unsaid, rather than voiced as arrogant assertions. Nothing would have changed the fact that approval of such a resolution by parliament would sail through with or without the Opposition’s endorsement.
But the core of the criticism should have been why was this being presented at this late stage, rather than being addressed in advance during the process leading to the privatisation. As representatives of the people, parliament should be interested in ensuring that such deals are conducted with the highest standards of corporate governance and that the government, as outgoing shareholder, and the board of Maltacom, do not expose themselves to claims of unfair trading which protects the interests of the outgoing majority shareholder at the expense of the minority shareholders, who are staying on as co-owners of the company with the new incoming majority shareholder.
When such things happen it is unavoidable that one questions whether our regulators and corporate executives pay only lip service to the need of high corporate governance standards. Public corporations and the government have to lead by example, as they are responsible for protecting the interests of the public in general and the small minority shareholders in particular.
Although the process of this privatisation has been fair and transparent, I am not convinced that, from a price point of view, we should not have done better. The argument that the price of Lm1.55 per share is at a slight premium to international valuation of similar companies, based on profitability criteria, indicates that no premium was included in the price to take account of the substantial assets that are not essential to the company’s profitability.
The most obvious candidate here is Maltacom’s substantial liquidity, including substantial cash balances and receivables. Should not these have been distributed to present shareholders before the share transfer was concluded?
Following criticism that valuable real estate, not essential for the company’s core business, should not have been included in the privatisation package, given that the price tendered was based on profitability criteria and not asset values, revelations were made in parliament this week that sounded like an after-thought to parry such criticism.
The minister responsible for Maltacom’s privatisation explained that the said property was, in fact, not included in the privatisation package, as the government had reached agreement with Maltacom to acquire such real estate and in compensation would be granting Maltacom full title to property used for its core business that is currently rented or used on some concession title from government.
This to me sounds like a “tbazwira” (bungling) bigger than those that government spokesmen like to attribute to the Opposition Leader. These are serious matters and cannot be treated with the off-handedness of an after-thought.
Maltacom’s privatisation was a long drawn out process, as it have should been for the sake of transparency and governance. There was all the time in the world for such matters to be fully planned, approved and executed before the actual privatisation.
Government was not the sole owner of Maltacom. Minority shareholders have every right to be informed of what exactly has been agreed and to satisfy themselves that their interests as co-owners of Maltacom have been effectively safeguarded.
As an outgoing shareholder, the government has a clear conflict of interest in negotiating such a property exchange and it is therefore important for the sake of acceptable standards of governance that such a property exchange deal be conducted under the gaze of the general public and the private shareholders.
I would even dare suggest that, given that such a property exchange is not in the ordinary course of business of the company, there was an obligation to seek approval for the matter from shareholders at a general meeting. At such a meeting, small shareholders would not only have full access to information but would have the opportunity to comment and express an opinion on the transaction.
Has the proposed property exchange deal short-changed the minority shareholders who could have been rewarded better and more fairly if the property was disposed of in the open market? The minority shareholders have a right to ask these questions and the board of directors has a duty to give full and clear answers.
What amazes me is that when the minister concerned gave this skimpy information in parliament, the Opposition only found fault with the deal on the question of parliamentary technicalities.
They took the minister to task for not seeking prior parliamentary approval for this property exchange, given that parliamentary rules demand that concession of property rights – as proposed in the property exchange deal with Maltacom – are subject to parliamentary approval.
It is true that the minister sounded brash and arrogant when arguing that parliamentary approval could be considered as mere rubber-stamping, given that the government commands a five-seat majority in parliament. He could easily have said the same truism in a more technically correct manner by stating that the deal was subject to parliamentary approval and that parliament would be given every chance to debate and decide the matter. All the other assumptions could have been left unsaid, rather than voiced as arrogant assertions. Nothing would have changed the fact that approval of such a resolution by parliament would sail through with or without the Opposition’s endorsement.
But the core of the criticism should have been why was this being presented at this late stage, rather than being addressed in advance during the process leading to the privatisation. As representatives of the people, parliament should be interested in ensuring that such deals are conducted with the highest standards of corporate governance and that the government, as outgoing shareholder, and the board of Maltacom, do not expose themselves to claims of unfair trading which protects the interests of the outgoing majority shareholder at the expense of the minority shareholders, who are staying on as co-owners of the company with the new incoming majority shareholder.
When such things happen it is unavoidable that one questions whether our regulators and corporate executives pay only lip service to the need of high corporate governance standards. Public corporations and the government have to lead by example, as they are responsible for protecting the interests of the public in general and the small minority shareholders in particular.
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