Did Singapore Airport Services Really Pay A High Price for Singapore Food? Don't be fooled!

TODAY published an article on 3 December 2008 on the sale of Singapore Food Industries to Singapore Airport Terminal Services ( SATS). . The Editor used the market capitalisation of Singapore Food to state whether the sale price was at a discount or premium.So is market capitalisation a good measure of whether an acquisition is cheap or expensive?

Let's give an example, if 2 slaves each cost $4. ( just for simplicity sake lah...we hate slavery...don't be soooo uptight!). If one slave has a debt of $1 but another has a debt of $3. If a master was to buy a slave and he has to pay back the debt owed by the slave, which is actually a more expensive buy? Of cos the slave who has a debt of $3 is the more expensive buy. On the same token, if one slave has $1 dollar in his pocket and the other has $2 in the pocket. When you buy a slave, you get his dollar in the pocket. So in this instance, the slave who has $2 in the pocket is a cheaper buy as you get to pocket the $2. So let's use this concept to measure whether the buy price of Singapore Food is cheap or not, shall we?It is actually a well used concept with a jargonic name called Enterprice Value. It is a measure of the theoretical takeover price that an investor would have to pay in order to acquire a particular firm.It is better intepreted as the true cost of the acquistion in the market place ( See Opinions at the bottom of the article by CC for more insight. )Read Here to find out more about Enterprise Value.

Enterprise Value ( EV) = Market Cap + Debt - Cash

Debt = $74,968,000 (ABOVE)

Cash = $17,428,000 (ABOVE) From above, it is stated that 69.68% represents 359,731,154 shares. This means the number of shares outstanding for Singapore Food is 516,261,702 (100%)

Calculating...........

Enterprise value = 516,261,702 X 0.89( Using the price given in the above TODAY article) + 74,968,000 - 17,428,000 = 517,012,915

Therefore, the theoretical cost of the acquisition if we based on market-determined price of 89 cents listed on the Singapore Stock exchange in TODAY's article should be $517,012,915. If we divide it by the total number of shares = 517,012,915 / 516,261,702 = $1.0015 per share.

Today stated that 93 cents is a 4.5% premium to the 89 cents of Singapore Food. At first glance, it seems Singapore Airport Terminal has paid a premium. But based on Enterprise value, it seemed SATS did have a good deal after all, paying 93 cents instead of $1.0015, a 7% discount!

The cost of the acquisition to SATs if they are able to acquire all the shares in the market place based on last done market- determined price of 89 cents on the Singapore Stock Exchange in the TODAY paper above is therefore theoretically ( academically) actually $1.0015 per share. Mainstream media states 93 cents as the price paid per share.

But what is the true true true true true true true cost that it paid? Since SATs paid 93 cents. Based on the below calculation,

516,261,702 X 0.93+ 74,968,000 - 17,428,000 = 537663382.86

537663382.86/ 516,261,702 (shares)=$1.04 per share!!

(This article has been heavily edited after contributions from readers. SGDividends SUCKS!! )

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team

Improper Disclosure for Minibonds? How about Fund Managers?

As we approach the end of the year, some people are speculating that certain counters will be rallying due to "Window Dressing" by Fund Managers. In case you are "sotong" about the term window dressing, it refers to the oft-said practice of fund managers buying stocks that have been performing well and discarding stocks that have been performing like shit just before they have to report their holdings in a prospectus or interim reports to unitholders. This is to make their holdings look good to people. (Wayang).

But SGDividends, as usual, don't give a fiddler's fart on what people say until we can prove it. But sad to say, we failed. Its nearly impossible to prove this due to either the lack of disclosure of their holdings and the lack of disclosure on the date they purchase their holdings...So well.

Anyway, we think the fund management industry has a lot to improve in terms of disclosure. If not for our curiousity in poring through their prospectus ( originally for the "window dressing" project), we would not have known that they are paid a performance fee on top of their management fee. Why can't these funds state that they also DO CHARGE performance fee in their well marketed FACT SHEET!See so much white space above in the box titled Fund Details? See below for the performance fee they charge in their financial statements.It's a little comfort to know that they do not charge performance fees that quarter ( from beginning of year 2008 to 31 March 2008), given that they have unrealized loss. But isn't it such a great business to have, lose money, i don't get bonus(Performance fee), win money, i get bonus(Performance fee). All in all, portfolio profit or loss...i still get money(Management fees), only how much money (fees) i get.

Anyway, could the rally in the Month of March this year 2008 be due to "Window Dressing"?

Important: The objective of the articles in this blog is to set you thinking about the company before you invest your hard-earned money. Do not invest solely based on this article. Unlike House or Instituitional Analysts who have to maintain relations with corporations due to investment banking relations, generating commissions,e.t.c, SGDividends say things as it is, factually. Unlike Analyst who have to be "uptight" and "cheem", we make it simplified and cheapskate. -The Vigilante Investor, SGDividends Team