Maxis Taken Private - Not So Good News for Minority Shareholders

Today Maxis, Malaysia's largest mobile telco, suspended its shares upon receiving notification that Usaha Tegas ("UT"), a company controlled by substantial Maxis shareholder Ananda Krishnan, will make a general offer for shares of the company that it does not already own.

In reality, Maxis had always operated on the basis that UT was the only shareholder. A long running inside joke at Maxis was that whilst everyone in Maxis Tower jumped when they got a phonecall from the 23rd floor (home to all the "C" officers of Maxis including the CEO), everyone on the 23rd floor in turn jumped when they got a phonecall from the 44th floor (home to Ananda Krishnan's lieutenants (read Ralph Marshall et al) and Ananda himself when he is not on his Dassault Falcon).

So in a way, corporate governance is better served by making explicit this master/servant relationship between Usaha Tegas and Maxis. Indeed, the PT Natrindo deal as well as Aircel was brought to the table by Ananda and UT. Maxis was never a master of its own (and minority shareholders') destiny.

So in the past 5 years as a listed company, Maxis could have done better for its minority shareholders. I have not yet had a chance yet to dig precise comparative share price and dividend statistics between Maxis and its 2 competitors, Digi and Telekom, but suffice to say that since Dec 2004, Digi's share price has increased about 300%, not to mention pleasing shareholders with 2 rounds of capital repayments. Maxis on the other hand etched only a gain in share price of 30-40% during the same period, with most of the gain in the last 6 months (after Hutchison Essar deal got folks a little excited about Maxis' Aircel subsidiary).

So yes, taking the company private under the control of UT would reflect the defacto situation today at Maxis. But whilst folks at Aseambankers and the Asian Wall Street Journal think its positive in that it gives flexibility for Ananda to inject fresh capital in the company, my take is a little less sanguine.

My hypothesis is that minority shareholders will miss out on the windfall that is likely to result from 3 factors.

First , the increasing robust valuation of Maxis's Indian subsidiary Aircel, which has not been fully factored to Maxis's stock price

Second, and conversely, the increase in Maxis stock price that would result from cutting loose PT Natrindo (and the capital outlays that it would require) .

Thirdly, a balance sheet approach that is more minority shareholder friendly e.g. returning cash to shareholders in the form of dividend and capital repayments, and introduce more debt to the company to finance this as well as future capex (as opposed to sitting on a cash hoard, which will now, of course, accrue to UT).

So fellow minority shareholders, think about these when deciding whether to sell your shares to UT (not that you have a choice when 47%+ of the vote is already in the hands of AK and UT). To be fair, Ananda has given you a return of about 200% over 5 years since IPO. But I think you deserve more.