Friday, 5 December 2014

The perils of the stock market (Part 2)

I like shopping and have a few properties at the prime shopping area in Orchard - Paragon, Ngee Ann City, Wisma Atria, The Atrium, Plaza Singapura and Orchard Hotel Shopping Arcade.  

Yes, these are actually among the REITs that I have.  I always try to shop and dine at these REIT shopping centers, so that my spending can contribute to the REITs earning and ultimately they pay me back via the regular dividends.

Before the era of REITs, some investors may have the same thinking.  There is one prime landmark opposite Orchard MRT station and that is non other than Tangs Plaza.

3. Privatisation battles - CK Tang

C.K. Tang Limited is founded by Tang Choon Keng in 1932. The company is in the business of departmental store retailing and general merchandising. CK Tang shares were listed in 1975.

Unfortunately this stock had a low free float or public float. Meaning the number of shares hold by the public were low comparing to shares hold by the major shareholder, in this case, the Tang family.

Any stock with low free float risk being taken private by the major shareholder.  Especially during bear season, because as the market is depressed, any privatisation attempt is much less expensive.  The major shareholder would not offer a high price for the shares held by the public minority shareholders. The minority shareholders may be forced to stomach a loss even if they have the holding power to wait for bull season to return.

The Tang family first attempted to take CK Tang private in  2003.  The minority shareholders thought that the offer price was too low and did not take into consideration the lucrative redevelopment potential of the prime freehold land that Tangs Plaza sat on.  But the Tang family stated that there is no plan to redevelop the Orchard Road property in the foreseeable future.  The minority shareholders won this battle by defeating the privatisation attempt.

The Tang family tried again in 2006. Again, the redevelop potential for Tangs Plaza was the major disagreement between Tang family and the minority shareholders. Tang family maintained that there is no plan for redevelopment, but minority shareholders worried that they would redevelop the property after privatisation and rob them of greater returns. The minority shareholders won again by defeating this second privatisation attempt.

In 2009, possibly third time lucky or simply due to battle weary shareholders giving up, the number of shareholders that agreed to sell hit the minimum required number and CK Tang was finally taken private. 

One last note. In 2012, the Tang family initiated a S$45 million transformation plan to its flagship store on Orchard Road.

Next, investing in a company could be a gamble, but if the management gamble... (see Part 3)

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