Victory at HI

In a good start to 2003 for minority shareholder value, investors heeded Webb-site.com's call and succeeded in blocking the deep-discount privatisation offer for Henderson Investment, by a margin of victory that would make Al Gore proud. It sets a new benchmark for privatisations by controlling shareholders in Hong Kong.

Victory at HI
19th January 2003

As we headed off for the Christmas holidays, our last words on Webb-site.com were a call to minority shareholders of Henderson Investment Ltd (HI, 0097) to get out and vote against the proposed privatisation of their company.

We are pleased to say that the deal was blocked. In the end, the shares eligible to vote were 691,732,472, or 24.55% of HI. In order to stop the deal, there had to be opposition from at least 10% of these minority shares, or 2.455% of HI.

As announced, the voting turnout on 2-Jan-03 (which may have been impeded by the holiday timetable) was 70.40% of the eligible shares, or 17.29% of HI. The vote against the deal was 70,190,181 shares, or 10.15% of the eligible shares, or 2.491% of HI.

In our previous article, we said "every vote counts (ask Al Gore)", and it certainly did this time. The margin of victory was just 0.036% of the issued shares. We don't know who voted which way, but it is interesting to note that Institutional Shareholders Services, or ISS, the leading US-based proxy advisory firm which covers blue chips here, advised clients on 17-Dec-02 to vote against the deal. State Street Global Advisers, manager of the Tracker Fund, is believed to be a client of ISS. Because HI is in the Hang Seng Index, the fund, which tracks the HSI, owns around 1% of HI.

Throughout the course of this battle, we had regular calls from hedge fund managers around the planet who were trying to ascertain the probability of the deal "breaking" or being blocked. Many minority shareholders had decided to take their gains and sell in the market just below the offer price, and hedge funds had bought up those shares, voted in favour, and were hoping to benefit from a few percentage points if the offer succeeded. They probably accounted for a sizable portion of the "yes" vote. Tough luck guys, you didn't think we could do it, did you?

We did get a couple of e-mails from small investors who felt that we had "spoiled" the deal. We gave an honest opinion, but if they disagreed, and thought that the $7.60 increased offer price (which came after our lobbying) was sufficient, then they could have achieved up to $7.55 in the market during the offer period, rather than wait for the vote. By waiting for the vote and a possible $0.05 extra, they were betting that other shareholders would not feel strongly enough to block the deal.

Despite all the forecasts of a price collapse, the shares have only fallen 7.6% from $7.20 (the day before the vote) to $6.65, and analysts are already contemplating what Henderson Land might try next to realise the value in Henderson Investment.

This deal sets a new benchmark for privatisation offers, and controlling shareholders of HK-listed companies will in future take care to pitch their offers at narrower discounts if they want to be certain of success.

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Victory at HI 19th January 2003

Victory at HI
19th January 2003