Is Eagle High still worth it, FGV?

By Xavier Kong

Felda Global Ventures Holdings Bhd continues to hang on to the value of Eagle High Plantations, preferring a renegotiation over aborting the proposal entirely. While Tiger heaves a sigh of relief, Tiger hopes the respite is not temporary.

When Felda Global Ventures Holdings Bhd (FGV) hinted some time back that it might abort the Eagle High Plantations stake acquisition, should the proposal not seem feasible following the weakening of the ringgit and the decline in value of Eagle High, Tiger saw a glimmer of hope.

The deal was initially valued at US$680 million (RM2.9 billion). Tiger hoped that FGV would not proceed with the acquisition and that the group had seen the light.

Mohd Emir Mavani Abdullah

When FGV group president and chief executive Mohd Emir Mavani Abdullah had announced that there would be a decision by the end of November, Tiger awaited the announcement on Bursa with bated breath, keeping the tab open, on Tiger’s browser, and refreshing it every few minutes.

When the announcement came that the deal would not proceed for now, Tiger heaved a sigh of relief, but did a double-take to read through the announcement, as well as the news that came with it.

A renegotiation? That is the plan?

Tiger has come to terms with the announcement, and has accepted that the respite remains temporary. But this becomes something new, does it not? For now the deal would probably be discussed on more equal terms, would it not? Tiger can only hope.

Still the question remains, which Tiger hopes can be addressed by FGV: is Eagle High still going to be worth all this hassle? Should FGV perhaps move on to other potential targets which may prove easier to buy and maybe even cheaper to boot?

There are a few things that Tiger sees, which would continue to be sticking points in any potential deal with Eagle High in Tiger’s opinion and raises concerns over the feasibility of the deal if it happens.

The first thing Tiger would like to bring up is the deposit that FGV would be required to pay should it wish to enter any deal with Rajawali Corp, who currently owns Eagle High.

Rajawali has previously stated that this will be how it determine if a buyer is “serious”, so to speak. This leads Tiger to believe that this may be standard operating procedure for Rajawali, and that any deal FGV may renegotiate with Rajawali would be unable to dodge the fact that there would be a deposit slapped in as one of the conditions of the acquisition.

Sure, FGV may have dodged the bullet this time around, in that the group had not managed to acquire the necessary permissions to pay the deposit before calling for a renegotiation of the deal. However, this may not be the case in the renegotiation.

In all honesty, Tiger feels that the fact that there has to be a deposit at all is laughable. Entering an agreement requires an amount of trust in the other party, does it not? Asking for a deposit just seems like a way of saying “I don’t trust the other guy”.

Moving forward, there is also the matter of the timing of the deal. While FGV and Rajawali have indeed pushed the deal a little further back, with renegotiations to happen in the first quarter of 2016, would it really be the time for FGV to be making the acquisition then?

The idea to wait for things to stabilise, which was the reason given for the date of the renegotiation taking place sometime in the first quarter of 2016, is a good idea, in Tiger’s opinion. However, Tiger would also like to ask how FGV intends to fund the consideration?

Would it fall back to its game plan from the aborted deal, paying in cash as well as shares in FGV (which Tiger thinks is a rather dangerous thing to do, offering so much trust in someone asking for a deposit), or would FGV come up with a different game plan? This will be one of the things Tiger looks forward to finding out in the new year.

Crude palm oil prices are currently weakened as well, which contributed to a drop in valuation of Eagle High’s shares. This leads Tiger to a question of balance. The balance will be between the strength of crude palm oil prices, and the valuation of Eagle High. For one, crude palm oil prices are expected to strengthen next year, which would lead to an increase in valuation for Eagle High.

While Tiger still hopes that FGV will see the light, Tiger has a fallback, where FGV would be able to strike the perfect balance in terms of valuation of Eagle High, that it not pay too much of a premium, while crude palm oil prices will be high enough that making the acquisition will not be as painful as it could be.

Tiger would also like to bring up that there is the matter of the weakened ringgit. With transactions between Rajawali and FGV conducted in US dollar terms, and the weakness of the ringgit against the US dollar seemingly set to continue well into the first quarter of 2016, FGV may be looking at paying more than it would have compared to the original deal, considering the consideration will be paid for in the US dollar, which FGV’s assets and funds, valued in the ringgit, would have to be converted to at a weakness.

Another question on Tiger’s mind is the matter of the size of the stake, as well as the matter of control over Eagle High. With the original deal placing FGV as the largest shareholder, but with no control over Eagle High, Tiger can only hope that the renegotiation, which will address the issue of the size of the stake, will also address the matter of control over Eagle High.

If FGV is going to be the largest shareholder and is paying a high price to be that largest shareholder, it would only make sense that its holds the ability to call the shots in Eagle High.

There are just too many questions that cannot be answered, and this in turn leads to Tiger continuing to be extremely wary of this particular deal. Until it can be proven that the deal is not trying to gouge FGV and its shareholders, Tiger can only continue to look askance at the renegotiation – and what seems to be FGV’s strange fixation on Eagle High.

Still, a new year is coming, and Tiger can still hope, right?

GRRRRR!!!