_______________________________________ This Article was published in The Malta Independent on Sunday on 25 March 2012
GO shareholders are stressed
The small shareholders in GO plc, formerly Maltacom, have good reason to feel stressed.
They are at the receiving end of two colossal mistakes made by the former owners (the government) and the present owners (Dubai Tecom) which have not only seen the market value of their shares as quoted on the Malta Stock Exchange plummet to record lows, but for the first time since its initial public offering (IPO), Maltacom has withheld its dividend.
It’s a pity that the association for small shareholders that I set up, with others, in 1999 to defend the interests of the small shareholders in Mid-Med Bank from a forced and bargain takeover by HSBC did not find enough support, after the Mid-Med battle ha been won, to survive as a permanent guardian to defend the interests of small shareholders in publicly-quoted companies. Such a permanent guardian is needed by small shareholders to defend them from the inefficiencies of the management of the companies in which they hold shares, and from unfair privatisation terms and the financial nonchalance of the majority owners that compromise the interest of the small shareholders.
GO was partly privatised in 1998 with an IPO price of Lm0.90 cents, equivalent to €2.10 per share. In the aftermath the GO share price had at one time reached a peak of about €7.50; it is currently less than €0.80 cents, i.e. 38 per cent of the IPO price and less than 11 per cent of its all-time high.
By any measure, the private shareholders in GO plc were badly let down by the government when, in 2006, it sold its residual 70 per cent holding, and by the Dubai investors who recklessly invested an imprudent amount of GO’s resources in a doomed Greek venture.
The profits that GO makes from local operations, with all the economies and efficiency gains extracted from the workforce, have been more than lost in this reckless Greek venture, the losses from which are weighing down GO’s share price and denying the private shareholders the dividend to which they have grown accustomed.
The first let down in 2006 was when the government sold its 70 per cent to Dubai’s Tecom without a prior distribution as dividends of the cash hoard that what was then Maltacom had on its books and without first selling the valuable immovable property at Qawra and again distributing the profits realised therefrom to the shareholders before the final privatisation act. By failing to do this, the government not only denied itself a substantial dividend on its 70 per cent holding but prejudiced the interests of the minority shareholders, leaving such assets at the disposal of a new management which is proving itself disgracefully incapable of giving a strategic sense of direction to the company and is taking grossly miscalculated investment decisions that are threatening its very existence and financial stability.
I am not being wise after the event. Here is what wrote in 2006, shortly after the sale to the Dubai owners (Judging Maltacom, TMIS, 26 May 2006):
“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 into account the substantial assets that are not essential to the company’s profitability.
The most obvious candidate here is the substantial liquidity of Maltacom including substantial cash balances and receivables. Should not these have been distributed to present shareholders before the share transfer was concluded at a price that was not arrived by asset valuation but by discounting future profitability? Should other assets, not essential for the company’s core business, including some valuable real estate, have been sold before the privatisation and profits therefrom distributed before executing the share transfer?”
I was personally involved in the first IPO for 30 per cent of Maltacom in 1998, and when the professional valuation was presented to us by two international banks that were helping in the privatisation process (HSBC and BNP), I asked what element of the valuation consisted of the real estate owned by the Company. The answer was that the valuation was based on future profitability and revenues, not on asset values.
Consequently, we agreed to ease off from the balance sheet of Maltacom before the IPO the real estate the company owned at St Julian’s, which was not considered core to the company’s operations. Through that decision, the land on which Pender Gardens and The Exchange are now being developed and which, up to 1999, belonged to Maltacom (including Mercury House) was carved out of it before the IPO and the government could obtain real and full value when it was subsequently sold to the present developers of Pender Gardens.
The same treatment was not reserved for Maltacom’s land at Qawra, as this was held on a short emphyteusis and would have reverted to government in a matter of a few years. Strangely, the government subsequently decided to deny itself such a reversion through conversion of the title to freehold for a premium that in no way reflects the asset value involved.
But this is nothing compared to the oppression that the small shareholders are suffering from the misguided investment that the new owners induced GO to make in a Greek media company. In 2011, GO incurred a charge to its Profit & Loss account of €62 million and this follows a similar loss on the same investment of €29 million reported in 2010. A whopping loss of €91 million on such investment in just the last two financial years! A similar charge of €9 million was incurred in 2009 and €13 million in 2008.
These are real numbers – total losses of €113 million on a Greek investment that has nothing to do with the purpose for which the local investors bought their shares in Maltacom amount to 140 per cent of the consideration the Government pocketed from the first IPO representing the sale of 30 per cent of the then Maltacom.
Here is what I wrote on this subject in 2009 (Go Greek TMI, 27 March.2009):
“Passive investors knew next to nothing on this large Greek exposure by their company and some even expressed surprise as they maintain that they invested in GO’s local operations and were at best hesitant about seeing their company take such significant stakes in overseas ventures.
Frankly I think that one of the reasons the market is punishing GO’s shareholders more than the index is that the company is not working as actively as it should to keep its investors informed enough to enable them to understand more deeply the strategy it is following under its new ownership. With deep pocket majority owners who have no interest in cashing out their investment, the market price of their shares may not be of great interest to them. But for the small investor the share price is important.
Even if the Greek investment were to be merely neutral and just provide recovery of the losses booked in 2008, the share price of GO deserves to be in another planet from where it is presently languishing.
Given the significant size of the Greek foray, GO’s management has a duty to explain to small investors what their expectations from this investment are, as this information could well change the Greek investment from a discount force to a premium force on the company’s share price. In due course, GO should also consider placing such overseas forays in one holding “international” subsidiary and list it separately so that investors who consider such overseas ventures too risky for their liking will have an opportunity to exit such risk without having to exit their investment in GO’s domestic operations.”
Nothing can change the fact that the small investors in Maltacom/GO have been short-changed twice since the full privatisation of 2006.