The announcement in mid-January that International Hotel Investments had entered into a conditional agreement to acquire Island Hotels Group Holdings plc caught many investors by surprise. The deal was concluded only recently and IHI acquired 100 per cent of the issued share capital of Island Hotels. As a result, IHG shares will be delisted from the Malta Stock Exchange.
Concurrently, with the initial announcements from IHI and IHG earlier this year, another voluntary bid took place after KPMG had launched a public takeover offer at the end of 2014 for the entire issued share capital of Crimsonwing. KPMG also managed to acquire all the shares of the IT company following the squeeze-out of some shareholders and Crimsonwing was delisted in May 2015.
Following these developments many investors began to realise that some of the companies listed on the Exchange may also be involved in merger and acquisition (M&A) activity similar to what many companies experience across the international financial markets. Such M&A deals dominate international business headlines on a regular basis.
Another unexpected announcement took place on July 23, when GO plc announced that its majority shareholder, Emirates International Telecommunications Malta Ltd (EITML), expressed its intention to dispose of its 60 per cent shareholding in the ‘short-term’.
This company announcement was made the morning after a general meeting was held to enable GO to spin-off its property division into a separate listed entity on the MSE by virtue of a special dividend ‘in kind’ to all shareholders of GO. The share price dropped rapidly in the aftermath of the surprise announcement of July 23 and only began to recover after a press release was issued by Emirates International a few days later, clarifying that the process to dispose of its stake in GO had just been initiated and it had not yet approached or identified any buyer.
GO’s majority shareholder also indicated that it will retain its stake in the property company after the planned spin-off since this business was aligned with the core real estate focus of Dubai Holding (the ultimate parent company of Emirates International). The equity of GO regained its multi-year high of €3.60 shortly after the publication of the June 2015 interim financial statements showing a 4.9 per cent rise in Ebitda to €25.5 million and a 53 per cent jump in pre-tax profits to €13 million. Last week, GO announced that it will be convening an extraordinary general meeting on October 29 during which shareholders will be asked to authorise the board of directors to seek bids for the entire issue share capital of GO and to take all steps necessary to expedite such bids.
As is customary in such cases, shareholders will also be asked to authorise the board of directors to make disclosures, including unpublished price sensitive information, which the directors may consider necessary for any bona fide bidders to complete their respective bids. In the coming days, all shareholders of GO will be receiving the admission form together with an explanatory circular on the resolutions being placed on the agenda.
Many investors seem to be concerned at the indication that bids will be required for the ‘entire issued share capital’. This is necessary since EITML holds 60 per cent of GO and in line with Chapter 11 of the Listing Rules dealing with ‘Takeover Bids’, once a shareholder acquires an excess of 50 per cent, a bid will need to be made to all other shareholders. Chapter 11 of the Listing Rules also establishes the criteria upon which the price should be determined. As such, any bidder for the 60 per cent stake held by EITML must also be in a position to acquire a larger stake and possibly also the entire issue share capital should other shareholders tender their shares for sale and the 90 per cent threshold is exceeded. Should this be the case, it would trigger the squeeze-out process and the eventual de-listing of GO plc shares.
Any bidder for the 60 per cent stake held by EITML must also be in a position to acquire… the entire issue share capital should other shareholders tender their shares for sale
Another similar announcement which must have also surprised many was that made by Medserv on September 17. The company will also be convening an extraordinary general meeting on October 12 to authorise its board of directors to disclose the required information (including unpublished price sensitive information) to potential investors. Medserv’s shareholders have already received the admission form and the explanatory circular. Medserv’s directors noted that the resolutions will enable them to provide information to persons showing an interest in acquiring a substantial shareholding in the company.
In terms of the Listing Rules, a substantial shareholder is one holding 10 per cent or more of the issued share capital of a company. The situation at Medserv seems to be different to that at GO since none of the large shareholders (the two largest shareholders hold 37.5 per cent each) of Medserv have so far indicated their intention to dispose of their shares.
Moreover, in the half-year financial report published on August 27, Medserv indicated that it is actively searching for additional opportunities particularly in Portugal, Egypt and the Middle East and therefore the authorisations being sought may be linked to the company’s international expansion strategy. During the upcoming meeting, shareholders have the opportunity to ask for clarifications on the motive behind the EGM and the likely resultant developments that may take place in the months ahead following the approval of the resolution.
In addition to the upcoming developments at Medserv and GO – whose outcome is still very uncertain – other similar developments are taking place in two other listed companies. The developments at Global Capital over recent months have been amply documented and similar corporate actions could possibly take place due to the capital injection required ahead of the new solvency rules for insurance companies coming into force in 2016 as well as the redemption of their €13.8 million bond.
Furthermore, the situation of the largest shareholder of Lombard Bank Malta is also known to all and earlier this year it was announced that the Investment Bank of Greece had been appointed to act as financial adviser to the Special Administrator of Cyprus Popular Bank Public Company Ltd in connection with potential transactions involving the disposal of the stakes of Cyprus Popular Bank in financial institutions in various countries including Malta. Once the process gathers momentum, other announcements and possibly similar shareholder meetings may also have to be called by Lombard Bank.
Following the delistings of both Crimsonwing and Island Hotels, only 20 companies now have their shares listed on the Official List of the Exchange. Should other companies mentioned above suffer the same fate, this would reduce further the equity investment choices available locally. This would be a great concern for investors at a time when they are clearly more willing to invest in securities listed on the Malta Stock Exchange. This is evidenced by the surge in trading activity on the secondry market this year with over €59 million worth of shares changing hands since the start of 2015 compared to €38.5 million during the first three quarters of 2014.
It is true that the spin-off of GO’s property division by the end of this year will create another listed equity and Simonds Farsons Cisk plc will be performing a similar spin-off in mid-2017. However, the shares in these new companies will be distributed to existing shareholders of the respective companies and thus no offer of shares will be made to the public at large.
Many more shares and bonds need to be listed on the Malta Stock Exchange to help deepen the capital market and provide both retail and institutional investors with sufficient alternative investments to achieve a properly diversified portfolio while also meeting their investment objectives. The low interest rate scenario across Europe is likely to persist for years to come and this will heighten demand for tradeable securities, especially those providing regular income streams.
A deeper capital market is also needed to achieve a more efficient financial market which ultimately is an important driver of economic growth.
Rizzo, Farrugia & Co. (Stockbrokers) Ltd (RFC) is a member of the Malta Stock Exchange and licensed by the Malta Financial Services Authority. This report has been prepared in accordance with legal requirements. It has not been disclosed to the company/s herein mentioned before its publication. It is based on public information only and is published solely for informational purposes and is not to be construed as a solicitation or an offer to buy or sell any securities or related financial instruments. The author and other relevant persons may not trade in the securities to which this report relates (other than executing unsolicited client orders) until such time as the recipients of this report have had a reasonable opportunity to act thereon. RFC, its directors, the author of this report, other employees or RFC on behalf of its clients, have holdings in the securities herein mentioned and may at any time make purchases and/or sales in them as principal or agent, and may also have other business relationships with the company/s. Stock markets are volatile and subject to fluctuations which cannot be reasonably foreseen. Past performance is not necessarily indicative of future results. Neither RFC, nor any of its directors or employees accept any liability for any loss or damage arising out of the use of all or any part thereof and no representation or warranty is provided in respect of the reliability of the information contained in this report.
© 2015 Rizzo, Farrugia & Co. (Stockbrokers)Ltd. All rights reserved.
Edward Rizzo is a director at Rizzo, Farrugia & Co. (Stockbrokers) Ltd.