1. C.K. Tang: The Fight towards Privatization
(A Case Summary)
Tang Choon Cheng was the founder of the Singapore-based company named C.K. Tang
Limited in 1932. The company is primarily dealing with departmental store retailing and
general merchandising. The company's main location is along Orchard Road with the building
Tangs Plaza which had been established since 1958. It has been a family tradition to have one
Tang family member on the board but unfortunately Tang Wee Sung, the CEO and second son
o tge founder owning 69.95 percent of the company's shares, resigned from the board after
the issue spread that he was involved in an illegal organ trading scandal. This is the very first
time that no Tang family member represented the board. In 1975, C.K. Tang had been publicly
listed on the Singapore Stock Exchange, which is presently called Singapore Exchange. This is
the reason why the company had many minority shareholders; about 500 had held the
company's shares. However, the Tang family wanted to privatize the company, the attempt to
delist it began since 2003. As a result, this became a major controversy for minority
shareholders which caused unhappiness and resistance among them. Through this, the battle
to privatization had been a long talk before successfully achieving the Tang Family's goal.
Now let's start on the first attempt to privatize the company via a scheme of
arrangement. Their first attempt happened last October 29, 2003. The then-CEO Tang Wee
Sung offered the minority shareholders a S$0.42 per share which represented a 35 percent
premium above the average closing price over the last five trading days. The price also
indicates that 19.2 percent discount against the company's intangible asset as of September
30, 2002. This was the first failed attempt to court the minor shareholders by the Tang Family.
According to the shareholders opinion, the price given was not enough and that there was lack
of information that was disclosed to them. But this didn't stop them from trying to convince
the minority.
The next attempt was occurred last December 2006 wherein it was in the form of a
voluntary unconditional cash offer. The Tang siblings, Tang Wee Sung and Tang Wee Kit
through Kerith Holdings which the siblings has control with, offered the shareholders a price of
S$0.65 per share. Although, there were acceptances from them it was still not enough to delist
the company. However, the some shareholders were not convinced about the offer because
they strongly believe that the company's building, Tangs plaza was undervalued. The offer
already represented 16.1 percent premium above the latest closing price at that time and a 9.4
2. percent premium to the company's net asset value which was based on its annual report for
the financial year ending March 31, 2006. So, the company remained publicly traded. At the
Annual General Meeting held last October 15, 2008. The minority questioned the board about
the financial losses and its plans to delist the company from the Singapore Exchange. The
board responded that it was their decision of the majority shareholder to exercise privatization
and that their duty is to look after the company business. It was again a failed attempt to
privatize the company.
Finally, the last and successful attempt was on May 8, 2009 through an investment
holding vehicle. The Tang Unity Three submitted a delisting proposal to the company. The
PwC, and independent financial adviser, made an evaluation of the offer given by the board
and recommended the shareholders to accept the price S$0.83 per share which represented a
22 percent premium over the company's last traded price and a 21 percent discount to the
firm's net asset per share price of S$1.05 as of December 31, 2008. The shareholders had
questioned the board if the offer given was reasonable and clarify about the redevelopment
plans of the Tangs Plaza after privatization at the Extraordinary General Meeting (EGM) last
July 31, 2009. The board responded that market price is constantly changing. The shareholders
also expressed doubts about the independence and neutrality of the CEO during that time, Foo
Tiang Sooi, because of the close relation to Tang Wee Sung. Foo Tiang Sooi and Tang Wee
Sung were former schoolmates and that the former worked for the latter from 1999 to 2006.
But Foo's defense was that the person who raised those questions was also related to him and
therefore making the fact irrelevant.
Now, let’s proceed to the major controversy of this battle. The undervaluation of the
Tangs Plaza was the major issue why it took the Tang family three attempts to successfully
privatize the company. PwC evaluated the building which is to be valued at S$340 million on
May 25, 2009. Meanwhile, the minority shareholders pursued that the building was worth
S$400 million, according to an independent appraiser. Under the rule which governs public
companies, "a property which is occupied for purposes of the business must be valued at the
open market value for its existing use." However, Rule 26.2 provides for the case in which "such
property is valued for an alternative use. For such a case, the costs of conversion and/or
adaptation should be estimated and shown." The board defended that there were no plans of
redeveloping the building and thus should be valued according to its "existing use". But one
investor disclosed to the public that the valuation of the redevelopment potential of Tangs
Plaza was in the 2007 annual report and the board's legal adviser, Yeo Wee Kiong, said that it
was not required to put a redevelopment valuation on the report. The board stated that any
3. such redevelopment was not applicable.
Many shareholders were unhappy about the valuation of the Tangs Plaza so they went
to the Securities Investor's Association Singapore (SIAS). The SIAS believed that the Tang
Family treated there minority shareholders with no dignity so they called for the regulators to
intervene on the matter. The shareholders also filed a petition to the SGX regarding the
undervaluation of the property's "existing use". The SGX's response was that C.K Tangs move
was purely commercial and that they have complied all the listing and delisting rules.
C.K Tang had initiated on a capital reduction exercise to reduce administrative burdens
which is to cancel out all remaining shares held by the minority shareholders. They will give
each investor S$1.30 per share that represents an increase of 56.6 percent on the exit offer in
2009. PwC indicated that the S$1.30 offer was 15 percent above the fair market value. They
have reaffirmed that there were no plans to redevelop the Tangs Plaza. But 39 percent of the
minority shareholders agreed for the share buyback which requires 75 percent. Therefore, the
C.K Tang would do more convincing to its shareholders for the buyout to succeed.
4. MicroHoo!: The Attempted Takeover of Yahoo! By Microsoft
(A Case Summary)
Microsoft had an interest on Yahoo's shares. Microsoft CEO Steve Ballmer have high
hopes of the merger between Microsoft and Yahoo because he sees it as an opportunity to
strengthen the market position in the online advertising market which was, at that time,
dominated by Google. According to his projections, the merger would raise the combined
companies advertising revenue to US$4.74 billion which is still lower compared to Google's
US$6.12 billion. Microsoft will have an advantage against Google online advertising market by
US$40 million. If Yahoo will be merged with Microsoft, they would reach 86 percent of US
internet and control 59 percent of the online display advertisement market. CEO of Microsoft
Ballmer, highlighted to his letter to Yahoo's board of directors that the advantages of the
merger are scale economics, expanded R and D capacity, operational efficiencies, and
emerging user experience. It is also expected to have cost saving advantages amounting to
US$1 billion a year. Microsoft would also be able to use Yahoo's existing technologies to have
an advantage against others and to reduce some capital-extensive projects such as the
building of massive data centers. Though Microsoft has high hopes of the deal to be successful,
Yahoo's resistance was making it difficult to achieve. Many of Microsoft's shareholders were
unhappy about the company's attempt to diversify their business. Although diversification
meant the stability of the company, the shareholders would want to effectively diversify on
their own. The intense desire of Microsoft to win Yahoo definitely had a negative impact on
Microsoft because its share price lowered from US$30.45 per share to US$26 per share in just a
span of 6 months following the takeover offer.
Here are the events that occurred during the courtship of Microsoft to Yahoo. Let's
start at February 1, 2008 when Microsoft launched an unsolicited takeover bid for Yahoo
hoping to have its search engine and online advertising resources which is to be more
competitive with Google. They offered US$44.6 billion which makes the bid price of US$31 per
share representing a 62 percent premium over Yahoo's closing price previously that day.
Yahoo's share price immediately increased that day. At the middle of February 2008, Yahoo
rejected Microsoft's offering claiming that they have undervalued their shares because Yahoo's
minimum asking price was US$40 per share. CEO Jerry Yang, also Yahoo co-founder, has been
the main obstacle on the merger between Microsoft and Yahoo. He enacted a safeguard
against takeover which is the "poison pill" severance plan to ward off Microsoft and began a
search for a white knight investor. They pursued alternative tie-ups with Google and AOL to
put a definite stop to Microsoft's takeover schemes. Microsoft's shares was falling and it was
used to induce Yahoo's shareholders to pressure the board to sell their shares at a price of
5. US$33 per share but it was again rejected the offer because they are insisting on a a price no
less than US$37 per share. Maybe Microsoft was tired of the chase for Yahoo's shares because
eventually they withdrew from their bit last May 3, 2008. On that very same day, Yahoo's
shares dropped to US$23 per share and dropped down further US$20 per share in the following
few months. It was then followed by a lawsuit given by shareholders to Yahoo's board of
directors. One activist shareholder, Carl Icahn, seconded the charges in several lawsuits against
Yang that "Yang's deep hostility toward Microsoft and his defensive and self-interested
conduct" had made the deal disappear leading to a major drop of Yahoo's shares price. Icahn
stated to The Wall Street Journal that if his proxy campaign would be successful, he would try
to remove Yang to the board. During October 2007, Yahoo's stock price had a drop of 22
percent from a US$33.63 per share to a US$26.15 per share.
Microsoft had given tremendous benefits and overwhelming feedback from
shareholders towards the merger but the attempt of Microsoft to takeover had been so
difficult due to strong resistance by the Yahoo executives. Yahoo's asking price of US$37 per
share after Microsoft had raised its offer to US$33 per share was extremely high because it
would represent a 93 percent premium offer over Yahoo's closing price at January 31, 2008.
Yahoo executives gave too many excuses like regulatory hurdles, pricing and strategic issues,
undervaluation of Yahoo and the loss of human capital and impact on employee morale in
order to cover up their actions. The pricing was one of the concerns of the Yahoo executives
because Microsoft's original bid was half cash and half stock so if Microsoft's share price
decreased during the takeover bid then this will lead to a corresponding decrease in its offer.
Yahoo also worried about being acquired by a much larger firm but with little expertise on its
field. While Yahoo continued to be profitable in spite of its poor recent performance,
Microsoft, on the other hand, had been in a loss in its internet division and low share of search
queries (9.9 percent compared to Yahoo's share of 16.3 percent in April 2009). Another aspect
that made it difficult to give up Yahoo was CEO Jerry Yang's personal attachment to the
company he co-founded, his strong hatred to Microsoft, and his hope to continue his legacy as
an Internet visionary.
Eventually, Yahoo announced its search for a replacement of Jerry Yang as chief
executive last November 2008. Carol Bartz has been the replacement if Jerry Yang as CEO last
January 2009. The two companies had restored the talks and inked partnership in search and
advertising in July 2009 through the administration of Carol Bartz. Yahoo’s revenues has been
decreasing every year and its performance has been deteriorating, it has resulted to the firing
of the then-CEO Carol Bartz and it was replaced by the CFO Tim Morse being the interim chief
executive in September 2011. There have been many private companies and equity groups
6. who have been expressing interest in buying out Yahoo since October 2011. But later in
November 2011, there have been talks that Microsoft rekindled its interest in Yahoo. However,
Scott Thompson, the President of PayPal, was hailed as the chief executive of Yahoo since
January 4, 2012. It was then followed by the departure of Jerry Yang last January 17, 2011 from
being member of the board of directors. There have been rumors that the departure of the
cofounder and then-CEO could probably speed up the transaction of buyout by Microsoft of
Yahoo including its 40 percent stake in Alibaba and its investment in Yahoo Japan. Whether or
not the deal will take place, the decision will primarily be held by the chief executive officer
along with the stakeholders.
