Published March 26, 2009

Is it time to delist Maveric?

By TEH HOOI LING

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BACK in 2006, when the market was still hot, Total Automation sold its control, engineering and manufacturing businesses for $116 million cash net of transaction costs. The company distributed $90 million back to investors as special dividends. The remaining cash of just under $30 million was meant to be used to purchase a new business to be injected into the cash shell company. In the meantime, because there was no core business, trading of shares in the company - which changed its name to Maveric - has been suspended since July 2006.

Fast forward to today. It has been nearly three years and the market has turned from super bull to super bear. Yet, the management of Maveric is still nowhere close to injecting a new business into the shell company.

Maveric announced last month that the proposed deal to purchase Kim Heng Marine & Oilfield and its related companies - first announced at end-2007 - had fallen through because both sides failed to agree on a set of mutually acceptable commercial terms and structure in light of the current challenging economic conditions.

So, minority shareholders are back to square one. There's no way to exit the stock because it has remained suspended all this while. Maveric has received numerous extensions of its stock suspension from the Singapore Exchange - the latest of which expired last Friday.

Should SGX allow Maveric to extend its suspension period yet again while it starts the process anew to look for a business to acquire?

One line of argument goes that the management has had nearly three years to complete a deal. And market conditions in the initial part of those three years were perfect for deal-making. The mainboard listing status of Maveric which is as clean as any shell company comes could have been worth $15 million to $20 million then. And yet the management failed to get any deal done. In the meantime, it continues to draw salaries. Money and time have been lost, and will continue to be lost if the suspension period is further extended.

If the management couldn't seal a deal in the best of times, what more now? So why allow a further extension? How long more do investors have to wait? Hence, the best option is to give investors an exit offer equivalent to the remaining cash in the company and delist the stock.

But there is another perspective to this. That Maveric is a cash-only company and has been suspended in the last three years may be a blessing in disguise for shareholders. At least, they have been shielded from the financial storm. Had its management completed a deal during the peak of the bull market, valuations paid would have been high. And the business injected would also have been hit by the current slowdown. The relisted stock could easily have seen its market value halve, if not more, if investors had held on to the stock.

Now, at the very least, investors still received a dividend distribution of 5.8982 cents per share a few weeks back. That leaves the company with a cash balance of $18.5 million.

So if an extension is given, the company could have a chance to pick up some cheap and good assets in the next 12 months - that is, as long as the management has shareholders' interest as the top priority. That said, with just $18.5 million, it's not certain what business it could pick up given that part-financing the purchase with loans may not be that viable an option anymore amid the extremely difficult market conditions now.

Hence, it's a tough call. But no doubt, those investors who have lost faith in the management would want nothing better than to have their cash of 11 cents a share back and have Maveric delisted. Get the money now, rather than a potentially smaller sum in the future. And they may not be entirely irrational for preferring that option.