Local flavour

IT comes as no surprise that another local company listed on Bursa Malaysia has been, or is in the process, of being bought over by a foreign company.

Over the years, there have been local companies that have ended up in the hands of foreign companies. Malaysian Oxygen Bhd and JobStreet.com, both home-grown success stories, have ended up under foreign control.

Buyouts are part-and-parcel of the stock market. Takeovers do happen, but when a foreign company buys a local company, it is often the case of the local listed company having good prospects.

The key differentiator has been just how the local companies have been performing. Like the other two companies mentioned, they tapped into the growing industrialisation in Malaysia and also the growing divergence towards the online space.

But in the case of OldTown Bhd, its expansion and the growing space involving domestic demand certainly must have appealed to Jacobs Douwe Egberts, the acquirer.

It is buying OldTown at RM3.18 a share for a total of RM1.47bil. But there is a big difference between this acquisition and what has been done before.

For one, the premium paid for the shares is not much. At around 11%, it is a small premium to what you see overseas when foreign companies buy a competitor.

The irony in Malaysia is that the premium companies are willing to pay is small compared with, say, what is done overseas.

It has become almost common practice where the premium for a listed company in Malaysia is about 20%. This pales in comparison with a lot of deals done in the US, where the premium for a takeover is much higher.

The argument that can be made on the Malaysian company’s behalf is that if the company has displayed growth, and the prospects are good, then the organic growth in the share price of a company will rise that much in a year, as the market recognises the improvement in the business and prospects of a company.