Published August 27, 2008

A good deal for Eng Wah minorities?

By VEN SREENIVASAN

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BONANZA or bummer? That's a question some of Eng Wah Organisation's minority shareholders might be pondering after the company announced it had sold its remaining four properties to its founder and controlling shareholder, Goh Eng Wah, and his daughter and managing director, Goh Min Yen, for $99.48 million.

Earlier, the mainboard-listed cinema and property group disposed of a fifth property to another party for some $13 million.

The concern is that the $99.48 million selling price was virtually the valuation price of the property. So did Mr Goh and his family - who control 70 per cent of the company - get a sweetheart deal? To answer this, one has to look at the transaction in the context of Eng Wah's impending $675 million reverse takeover (RTO) by Transcutaneous Technologies Inc (Transcu), a Japanese biotech firm whose board members include luminaries like former US state secretary Alexander Haig, ex-deputy state secretary Richard Armitage and top World Health Organisation research scientist Steven Reed.

Under the RTO deal, Eng Wah must clear all its assets and liabilities, then distribute the resultant cash to shareholders. The RTO process is in its final stages, and if all the paperwork is in order, should be completed by its December deadline.

Soon after the preliminaries of the RTO were nailed down in Q4 last year, Eng Wah appointed international property specialist Jones Lang LaSalle (JLL) to handle the sale of its property. In May this year, Chesterton International did a valuation of the properties. However, JLL's invitations for expressions of interest on the properties appear to have gotten off to a cool start in January. Though several parties came forward, the deepening global credit crunch made it difficult for prospective buyers to raise funding. The property market started softening by mid-year, with no serious offers on the table.

Meanwhile, the rapidly deteriorating property market conditions made the May valuation report a historical, and somewhat irrelevant, document.

Yet disposing of the assets was a key condition for the RTO. The choices were clear: sell at the best available price, or abandon the RTO. And the best price available as at last Friday was that put forward by the Goh family.

Eng Wah is now at the point of realising $113 million in cash from its five properties. Then there is the additional $27.5 million from its previously-approved capital reduction exercise. And there is also that $2.75 million from the sale of its Crazy Horse cabaret premises two weeks ago. The grand total works out to $143 million.

But under the share swap agreement, Transcu will get $10 million in cash. That leaves at least $133 million for shareholders, or some 88 cents per share. Under the terms of the RTO, this money is to be distributed to Eng Wah shareholders. In addition, shareholders will get one pre-placement Transcu share per Eng Wah share. The remaining Transcu shares will be privately placed out later at 38 cents per share.

So, the underlying value of each Eng Wah share works out to $1.26 per share (88 cents cash plus 38 cents in Transcu shares) - a nice little Christmas bonus.

With the Goh family abstaining from voting on the transaction, minority shareholders will have the decide, on Sept 10 whether to approve the deal.

The key question is whether the properties were sold at a fair price. To answer this, they have to look at the state of the property market, whether there are any higher bids, and whether such a sale can be completed before the December deadline. In essence, has New York-listed JLL done a good job?

Another factor to remember is that, for the longest time, this stock has been one of the most illiquid and inactive counters on the local bourse, stuck largely in the 25-35 cents band.

The failure of its Crazy Horse franchise and the unexciting cinema business has not done much to enhance Eng Wah's attraction as an investment prospect.

But news of the RTO injected new life into the stock late last year. And, most importantly, the RTO now gives long-suffering minorities a very profitable exit strategy.