By Xavier Kong
While Tiger can understand looking into new avenues of revenue, Tiger feels that Life Inspired, the soon-to-be wholly-owned subsidiary of Star Media Group, raises a warning flag. Why is there such a disparity in value for two-halves of the same company
Sometimes, some deals happen where Tiger cannot help but feel something fishy is going on. While the statements may suggest otherwise, Tiger just cannot shake the feeling that something about the deal just does not add up.
In this case, Tiger is talking about the recent acquisition by Star Media Group of the 49% remainder stake in its subsidiary Li TV Holdings Ltd from its joint-venture partner Juita Vinden International Ltd, where Star is paying US$1.5 million (RM6.26 million).
What seems fishy here is that the valuation of the 49% stake at RM6.26 million differs greatly from the value of the initial 51% owned by Star. It was back in June 2011 when Star had acquired the initial 51% stake in Li TV Holdings Ltd, with the valuation at that time standing at RM35 million.
Comparing RM35 million to RM6.26 million shows a difference of RM28.74 million. So what gives?
This difference in valuation is not the only thing that comes up as fishy for Tiger. There is also the matter of contributions from Li TV, though a better phrase would that there is a lack of contribution from Li TV to Star’s earnings at all.
Yes, the expected gestation period is four to five years, but with the acquisition of the initial 51% stake in June 2011, this makes more than four years. Not only has there not been any sign of a turnaround, the TV channel had even reported US$950,000 in losses before interest, tax, depreciation and amortisation, as well as US$960,000 in pre-tax losses, despite its revenue of US$1.38 million, which in itself is less than what Star is paying to acquire the remainder.
Tiger is of the opinion that Star has made a misstep in terms of acquiring Li TV, where they should have disposed of the loss-making subsidiary. No, Tiger is not above giving the company the benefit of the doubt, but with there being no indication of a turnaround so far, Tiger thinks that the misgivings Tiger feels are fair.
Of course, the attempt to move into the TV segment by Star may be laudable, but Tiger cannot, in all honesty, believe that this acquisition is the correct move.
Really, why is Star even paying RM6.26 million? Especially when there has been little to no returns from Li TV over the past four years? Even the amount itself makes for too many questions, and with Tiger already asking so many questions, Tiger would definitely not want to be the one answering the questions of shareholders at the next meeting.
With the lack of returns over the past four years, should the takeover not be for a token sum instead? Even the sum of RM6.26 million implies a loss of almost RM29 million on Star’s part, due to the RM35 million that it had initially injected into the joint venture.
All this tells Tiger that someone somewhere is going to have a lot of explaining to do. Especially since the reasoning given for the acquisition remains a vague “to diversify our media assets”. Just what does Star hope to achieve by turning Li TV into a wholly-owned subsidiary? An explanation would be really great.
Tiger would also like to note that analysts have expressed neutral to negative sentiments over the acquisition of Li TV. The best part is that this was not only for the recent 49% stake acquisition, but also for the initial 51% investment.
According to Maybank IB, even back then in 2011, Li TV was already loss-making, though it would not impact Star’s earnings, and the research house had also noted that “while we are encouraged that Star is continuing to diversify its media assets, it remains to be seen if Li TV can contribute meaningfully going forward”.
Not exactly the most reassuring statement to Tiger, in all honesty. As such, Tiger is firmly of the opinion that, unless there is some form of grand strategy involved, the move to fully acquire Li TV is a mistake on Star’s part.
Tiger is also looking pointedly at Star for an explanation regarding all this (though Tiger is not sure just how much good the pointed look would do). This riddle vexes Tiger, and Tigers do not like to feel vexed.
GRRRRR!!!
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