Minority shareholders put at disadvantage as conglomerate's buy-back process clears hurdle

HONG KONG INVESTORS are nothing if not pragmatic. Guoco Group's HK$50 to HK$55 per share buy-back offer is a deep discount to net asset value but a premium to the recent market price. The proposal squeaked through last week after enough shareholders were persuaded to take the money and run.

A bird in the hand is worth two in the bush, as Aesop (and, more recently, Warren Buffett) observed. Even so, last Wednesday's vote represented a moral victory for dissident shareholders who complained the offer was too low.

The margin could not have been much narrower, with only 50.51 per cent of the votes cast in favour, in a town where most management proposals go through on the nod.

The dissidents did succeed in blocking a 'creeper authorisation' that would have allowed Guoco's controlling shareholder to raise its stake by a further 2 per cent in the 12 months following the offer.

Having netted more than HK$75 a share from the sale in April of its prize asset - 71.3 per cent of Dao Heng Bank - Guoco now has the go-ahead to buy out minority shareholders for as little as two-thirds of that.

The buy-back will tighten control of the company by the Quek family of Malaysia and therefore the Dao Heng cash pile, pushing its stake in Guoco to as high as 46.28 per cent from 34.68 per cent.

However, this is by no means the end of the saga. While Guoco can proceed with the offer, it remains to be seen how many shareholders will sell. The company is seeking to buy back up to 107 million shares but votes cast in favour at last week's special general meeting amounted to only 59.81 million shares, so a full take-up is not guaranteed.