The one-billion share question

IN the capital market, mergers and acquisitions are always a healthy part of life.

Even when deals fall through, they set precedents, contribute to price discovery and highlight other factors that the markets contain, some of which can be so nuanced that no one knew of their existence.

Sunway Bhd’s bid for IJM Corp Bhd would tick all those boxes.

In terms of valuation, Sunway’s offer of RM3.15 per IJM share should theoretically be the base price for anyone thinking of launching a buyout of IJM.

In fact, going by the independent advice, IJM shares are worth a lot more, between RM5.84 to RM6.48 a piece.

Yet, sometime next week, when the 33.43% of IJM shares, totalling some 1.17 billion units, are returned to shareholders, reality will diverge from theory.

It will likely take around 10 working days for the shares to be returned. That will be 10 days from April 6, when Maybank Investment Bank, who had been acting for Sunway Bhd, the offeror, said that the offer had lapsed as acceptances did not reach beyond 50%.

IJM’s shares, trading around RM2.30, are trading significantly below Sunway’s RM3.15 offer price, let alone the valuations ascribed to it by the independent advisor.

There had been some selling when some key government-linked investment companies (GLICs), which control over 43% of IJM, had indicated that they were not going to accept Sunway’s offer.

It is well established now that if you strip out the GLIC block, the majority of the other minority shareholders were keen to accept Sunway’s offer.

It is also accepted now that the GLIC bloc effectively stopped the deal from happening.

But the owners of this 33.4% of shares of IJM (who will be getting their shares back soon) must be a varied bunch. They, of course, include the long-term owners of IJM, who know their company very well and yet believed that more value would have been achieved from the Sunway merger.

This is likely to be for the simple reason that IJM had not been delivering the expected results over the years.

Conversely, Sunway had been doing all the right things and getting the markets attention and premium valuations.

It is these holders who must feel hard done by in this entire saga. While they had been waiting patiently for IJM to deliver value, their wait has been long and arduous. Between 2015 and 2025, IJM’s share price fell by 33%. (Sunway’s share price improved by 339% in that period.)

But within this group of 33.4% shareholders are also newbies who would have jumped into the stock for arbitrage gains.

This is simply because IJM shares were trading below the Sunway offer price.

The investors are likely to not have had a long history and understanding of IJM. In all markets, opportunistic investors exist.

To some extent, they provide the oil to which the capital market engine functions. For them, this bet has turned sour.

Depending on their entry price of course, it is left to be seen how they will be able to clear their positions. Many are likely to take a hit as they had no intentions on being long on this stock. That again, would be part of the overhang pressure on IJM shares that will persist for some time.

For long term investors of IJM who accepted the Sunway offer, their best bet would be to stay a while for another ride.

The good news is that the Sunway bid seems to have woken up the IJM management.

The immediate plan is to expedite the listing of its businesses, starting with the construction division and highway concessions, expected in the next two years. It however has to keep growing its port business which will require more capital, while its property arm is still at its incubation stage.

But will all of this be enough to sustain the interest of the IJM shareholders who were happy to accept Sunway’s bid?

Furthermore, all this is unlikely to matter to the arbitrage investors who took a punt on IJM shares on the hope that the RM3.15 offer deal would go through. They could make up a significant portion of those who accepted Sunway’s offer.