Published May 14, 2009

Should CK Tang shareholders throw in the towel?

By JAMIE LEE

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THE third attempt by the Tang family to take retailer CK Tang private isn't the most attractive deal - in premium terms.

But as defeatist as it sounds, minority shareholders should consider throwing in the towel.

Announced last week, the proposed offer is to buy the remaining 13.39 per cent that the Tangs do not own at 83 cents per share. This represents an 18.6 per cent premium to the last traded price of 70 cents.

PricewaterhouseCoopers Corporate Finance has been appointed as the independent financial adviser, CK Tang said yesterday.

The premium offered in the latest deal is the worst among all three bids.

In 2006, the Tangs - through brothers Tang Wee Sung and Tang Wee Kit - offered a premium of up to 25 per cent from the last traded price prior to the announcement.

They had offered 65 cents per share but said it would raise the offer to 70 cents if the acceptance level crossed 90 per cent.

In 2003, then-chairman Tang Wee Sung's first offer came at 42 cents a share, some 37.7 per cent more than the last-traded price at that point.

Looking at a comparison against net asset value (NAV), the offer of 65 cents launched three years ago was a 9.4 per cent premium to the NAV of 59.4 cents. Today's delisting offer is a 20.95 per cent discount over the company's net tangible asset of $1.05 per share as at Dec 31, 2008.

In short, minority shareholders who had ignored the two earlier offers in the hope of a better premium have been disappointed.

As long as 10 per cent of the total issued shares held by shareholders present and voting at the extraordinary general meeting (EGM) are cast against this third deal, CK Tang's desperate desire to go private will remain.

Should shareholders reject this deal though?

Some shareholders were holding on to the stock - despite it being illiquid and a non-dividend play - because they speculated that there would be re-development plans for its flagship store. This would bump up the company's NAV significantly.

Others might have expected the family to sell the business since the flagship store is, as the biblical analogy goes, on the promised land of all retailers and is likely to be eyed by competitors or suitors.

Both have not happened. The Tang family stated in 2006 that re-development would leave a huge vacuum in its retail business, while a sale was out of the picture.

'We'll sell our own homes first before we sell this place,' said Tang Wee Sung then.

Shareholders should not rule out the possibility that these could take place.

But a re-development at this point is unlikely. With the business bleeding - particularly after its expansion into VivoCity and Malaysia - CK Tang will not survive without its main store, much less stomach the additional charges involved in re-development now.

How about a sale then? Any family business faces the uphill task of getting the next generation to take over and while CK Tang is now run by professionals, it would be fair to assume that the family would want stronger involvement from its own household. Once that interest wanes within the family, the business could then be up for grabs.

But while possible, that option seems elusive at this point.

Those factors, plus the expectation that the NAV at this point is unlikely to improve under the sullen economic situation, gives little reason for shareholders to hold on to the stock. This is especially so as the stock offers little tangible value from here on.