The acquisition of Olam by Temasek is raising eyebrows and frowns from many quarters.Kenneth Jeyaratnam has commented negatively on it. Below is Christopher Balding’sarticle on the buy out of Olam. Temasek seems to be very bullish in this commodity trading company. It came out in full support when it was shorted down by Muddy Waters a year ago. Now it is making an offer with the possibility to buying over the company at a high price of $2.23 when it could have had the company for a song when it was under attack. Why? Why buy at such a huge premium and not when it was about 90c? Another case of buying high? OPM?
Why is Temasek supporting a foreign owned company to want to commit $2b on it when it could buy it for less than half the present price? Another long term strategy stuff?
‘Just had to write about this interesting little tidbit I saw today about Temasek and Olam. According to news reports, Temasek through a subsidiary is going to buy Olam at a 12% premium to the current share price. This is an interesting development and to me raises a couple of questions. First, I am intrigued that Temasek is paying a 12% premium after the stock has already increased 30% since the first of the year.
This means that Temasek is either paying nearly a 45% premium to what it could have paid just two months ago and is really slow to spot a value in its own portfolio or insiders were buying the stock in advance of a buy out offer they knew was coming. This 30% increase is even more abnormal considering the Straits Times (Index) is essentially flat for the year. Neither scenario is particularly attractive.
Second, this seems like a very oddly timed buy out. Prior to the first of the year, Olam had traded primarily in the $1.50-1.75 SGD range and this follows on the announcement that profit declined 13%. If Temasek felt this strongly about Olam and its long term business prospects, it would seem to be a better proposition to buy at the bottom of the market because you know the business well and believe the market is undervaluing the business. Not wait until there is a 30% increase in two months and then offer a 12% premium. The general philosophy of long term investors is buy low and sell high. I am just a professor though, so what do I know.’
Christopher Balding
Chua Chin Leng aka redbean
* The writer blogs at http://mysingaporenews.blogspot.com