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Investment bank Anglo Chinese has advised Boto International shareholders to vote against a proposed HK$1.06 billion core business sale in a landmark case of SAR corporate governance.

The company's independent financial adviser's ground-breaking opinion is expected to substantially boost the chance of success for those shareholders opposing the sale in a vote scheduled for August 19.

Although Boto management last month raised the HK$1 billion sale price by about HK$70 million to persuade shareholders to vote for the controversial deal, Anglo Chinese said the revised price did still not adequately reflect the true value of the business.

'[The consideration] represents merely the investment value of a minority interest,' the firm said in its letter of advice enclosed in a Boto circular yesterday.

'It does not carry a premium that is expected to be paid by a purchaser for control over the principal businesses of the company.'

Boto, the world's largest artificial Christmas tree-maker, is proposing to sell its profitable core business to a firm 75 per cent owned by United States private investor Carlyle Group and 25 per cent by Boto for HK$1.06 billion.

After the sale, the company plans to refocus on its start-up computer animation business, which made a loss of HK$8 million in the year to March 31.

The deal's price represents a price-earnings ratio of 7.5 times, lower than the average of 8.1 times for 20 industrial stocks, not including Boto, selected by Anglo Chinese for comparison.

Moreover, the deal's price-earnings ratio would decrease further to 6.55 times if some adjustments relating to stock and transaction costs as well as the loss from the start-up computer animation business were taken into account.

As a result 'we therefore do not consider the terms to be fair and reasonable. Accordingly we advise the shareholders to vote against [the deal]', the letter, which was written by Anglo Chinese director Dennis Cassidy, said.

Webb-site.com editor David Webb, who is campaigning to block the deal, said this was the first case of a financial adviser opposing a deal proposed by its client's management.

'It underlines how weak the terms of the deal are,' Mr Webb said. He called on other shareholders, including the company management, to follow Anglo Chinese's advice and vote against the sale.

Since chairman and managing director Michael Kao Cheung-chong, who controls about 56 per cent of the company, and three other senior members of Boto's management will be barred from voting, the deal will be subject to the approval of the shareholders controlling the remaining 39.4 per cent.

Contrary to Anglo Chinese's view, Mr Kao said in the circular that the terms of the arrangement 'are fair and reasonable and are in the best interest of the company'.

'I, for myself and on behalf of the management team, urge you to support the opinion of the board and vote in favour of [the deal],' Mr Kao said.

Mr Webb claimed he had been notified by about 13 per cent of Boto's small shareholders, including Templeton Emerging Market Funds, that they would vote against the deal.

Graphic: angl03gbz



Anglo Chinese wants Boto investors to vote down core asset sale