Voluntary de-listing by performing multinational
The local holders of 25 per cent shares in Unilever Pakistan Limited are rolling in gold following the decision of the UK-based parent company to acquire all of the shares held by the public.
The Unilever Overseas Holding Limited said it intends to ‘buy-back’ all outstanding shares at the three stock exchanges in the country and seek de-listing.
Already very expensive, the share with par value of Rs50 has climbed by Rs994 in two days since the announcement. The stock was last quoted at Rs10,694 on Thursday. Unilever Overseas Holdings has conveyed its intention to acquire stock at the price of Rs9,700 per share.
That was the closing value of stock just before the announcement of the decision on Wednesday.
All of it suggests that, at the current pace of rise, until the buy-back goes into effect, the Unilever stock price would have climbed astronomically. “The Overseas majority investors would then be left with the Hobson’s choice: either to agree to a huge upward revision in the buy back price or to roll back the offer”, says a major stock broker who asked not to be named. He blamed the broker fraternity for trying to spoil the deal.
It is not uncommon for companies to seek ‘voluntary’ de-listing from the stock exchanges for several reasons including: multinationals’ global plans to spin-off businesses inconsistent with the future needs; to escape the hassle of strict compliance with corporate governance rules; to get rid of the nuisance of small shareholders who breath down the neck of directors at the company annual general meetings, and as in case of high-profit, high-growth companies such as Unilever, to keep all of the profit to themselves itself instead of sharing it with the public.
Unilever Pakistan had announced cash dividends for the years 2010 and 2011 at as high as Rs49 and Rs61 per share respectively. The company did not release a public statement explaining the reasons for the buy-back and more importantly as much as the market wished to be informed. For example, which of the five ‘valuation techniques’ specified in the Listing Regulations for voluntary buy-back was adopted.
However, chairman and CEO of Unilever Pakistan said that the de-listing would not impact the company’s operations. “Through this process, Unilever Overseas Holdings is actually increasing its investment in the country by a substantial amount, which reaffirms its strong commitment to local operations and to Pakistan’s economic potential”, he said.
Most investment strategists said that going by the price of the Unilever stock, the company (with paid-up shares of Rs67 million) was valued at Rs677 billion at the stock exchanges. The KSE’s market capitalisation of Rs4.2 trillion would be poorer by that amount. But given its thin trading of just around 43,000 shares in almost a year, the existence or departure of Unilever from the Exchange was thought to be of little significance. Yet a market player insisted that the sentimental impact of the entry and exit of offshore investors was always disproportionately enormous.
There was scarcely a soul suggesting blocking the exit of any company that wished to voluntarily de-list itself from the stock exchanges.
Most thought the buy-back of shares by profitable companies brought benefit to small shareholders, who could pocket share sale price which
usually was brokered by the Exchange at much higher than the stock’s quoted value.
Khalid Mirza, former chairman of SECP and CCP said: “Whether to stay or exit the stock exchanges was a commercial decision by companies, which they were entitled to make according to their needs”. He stated that companies should enjoy the freedom to work on their corporate plans. Mirza reminded that it was currently almost a ‘fashion’ in Europe and North America for the listed companies to convert to private entities. Corporates are pushed by their commercial interest to go public only when they need to raise funds from the stock market, and if other means to access capital such as family, friends and cheaper money from banks, have been exhausted.
The number of companies registered with the Securities and Exchange Commission of Pakistan exceeds 60,000. Yet the number of listed companies is around 570, which means one in hundred registered companies hit the road leading to the stock exchanges. Enormous numbers of companies in almost all sectors — from fast moving consumer goods to cellular service providers enjoy benefits of the free-market economy.
Could they be forced to seek listing at the stock exchanges so as to share the benefits of the huge profit that they make with the public? Another former chairman of SECP who asked not to be named said that during his time in office, he had contemplated such a move. But he was restrained by the fear of further fall in foreign direct investment.
“Compulsory listing, if at all imposed, has to be incentive-based”, he said. A lower tax rate for listed public companies may attract private companies to mobilise funds from the stock exchanges, he added, but the caveat was that no-one was sure of the continuation of incentives as governments and policies could change in a blink of an eye.