Monday, 20 February 2023

AAG Privatisation Offer at 1.85 Thoughts

To start off, i was planning on going 3 trips next month, upgrade my phone , take some money off the market and take a break because i  thought i would have net a profit similar to 2022 already when the announcement of AAG Energy was being halted due to takeover related announcement,

Following the announcement, i guess none of them will likely happen and i have to in-fact consider booking a trip to hk instead as it is a scheme of arrangement at a price of 1.85

To put things in perspective, the offer is not bad as it is a 10% increase from the price before it was halted (1.68). However, it just seriously undervalues the company and the overtaking company has already stated that the scheme will not be increased and the offeror does not reserve the right to do so. 

It has also stated that it will not be able to offer again within 12 months should the scheme not go through unless SFC allows. AAG has also said that they have no intention to declare any dividend prior to completion of the Proposal

In fact, i was asked about my thoughts on the privatization when i went to a more than 10 billion dollar market cap company for an interview before (Not Macdonalds as the company is sgx listed). The guy asked if i was happy with the privatization and i said no cause i know it is going to limit the real potential of the company. 

However such is life where if u are to offer for something, u would want to get it as cheap as possible so that u get more value for the buck.

I have seen some questions and comments online which i would like to give my 0.1 cent replies.

Some commonly seen questions/comments include

C: If Privatization fails, the company will fall in share price back to 1.1-1.2 levels

A: If so, you would think that insiders would start picking up shares by asking their affiliate or someone to do it like a 3rd party fund manager and then make privatization easier the next time round.

In fact, if it fails it may compel AAG to declare dividends instead so that the money can go back into the books of the parent company instead of being consolidated in the same financial statements but in different individual company books

C: What if the parent company misuses the money of AAG by acquiring assets anyhow?

A: They can do so but why would you do something that is detriment to your own balance sheets as well as affect your own chances of securing loans especially when a huge loan is already required to purchase the AAG Shares

In fact, AAG Energy has so much cash that if you do a takeover, you can get a cashback better than many credit card and miles card around.

C: Privatization is likely to succeed as many insiders have already got the shares.

A: If so, there is nothing anyone can do anyway, we can just take the 10% and then call it a day and move on

C: AAG Energy if Privatization fails, might start 'sabotaging' its own business to drive share price down and allow owners to offer lower next time round

A: The projects are in collaboration with CNOOC and Sinopec, with respective companies actually holding a stake and contributing staff and expertise as well. The projects since national stake is involved, also has to do regular reporting and try their best to hit the yearly targets of production that has been increasing as China is moving into clean energy and energy that is self-sustained. As such, sabotaging is going against the government companies and the national policy which i believe its not worth doing just to take over a company at a cheaper price.

To make things worst, most of the loss in profit should such things happen will also reflect on the parent company's income statement as well and in turn will affect their ability to borrow or their share prices which might result in shares that are held under custody to be sold-off if share price drops too much.


If it succeeds then oh wells so be it. 

If it fails then share price volatility is expected but to agree the offer of 10% premium kind of misses my low expectations of 20-30% already. For myself i would monitor how things goes but currently i will not agree to the offer.

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