C.K.

Tang: The Fight

towards
Privatisation

About C.K. Tang

C.K. Tang Limited is a Singapore-based company founded by Tang Choon

Keng in 1932.

Business of departmental store retailing and general merchandising.

Since 1958, has been operating at its flagship building, Tangs Plaza,

C.K. Tang is a company characterised by the presence of a major controlling

shareholder.

In 1975, C.K. Tang was listed on the then Singapore Stock Exchange, which
later became the Singapore Exchange

Board of Directors

During the companys history, there was at least one Tang family member on
the board.

However, in 2008, Tang Wee Sung, CEO and the majority shareholder of the
company since 19878, stepped down from the board, after he was alleged to
be involved in an illegal organ trading scandal.

During the third and successful privatisation attempt, the board of C.K.
Tang was chaired by Ernest Seow, a former PricewaterhouseCoopers (PwC)
partner.

According to C.K. Tangs Corporate Governance Report in 2009, the board

would be responsible for enhancing long-term shareholder value and the
overall management of the Group.

First Privatisation Attempt:

Scheme of Arrangement

On 29 October 2003, Tang Wee Sung offered minority shareholders S$0.42

per share via a scheme of arrangement.

This represented a premium of about 35 per cent above the average closing
price over the last five trading days.

This price also meant a 19.2 per cent discount against the companys net
tangible assets as at 30 September 2002.

However, the resolution failed to pass, as the shareholders felt the offer price
was too low and wanted more information on the companys prospects.

Second Privatisation Attempt:

Unconditional Cash Offer (1)

In December 2006, Tang Wee Sung and his brother Tang Wee Kit, offered
shareholders S$0.65 per share through Kerith Holdings, a company equally
controlled by the brothers.

This second attempt was in the form of a voluntary unconditional cash offer.
The S$0.65 per share offer reflected a 16.1 per cent premium to C.K. Tangs
latest closing price at that time.

It also represented a 9.4 per cent premium to the companys net asset value,
based on its annual report for the financial year ending 31 March 2006.

When the offer deadline expired, insufficient acceptances had been received.

The reason was widely believed to be the undervaluation of the commercial

property Tangs Plaza.

As a result, the company continued its listing on SGX.

Second Privatisation Attempt:

Unconditional Cash Offer (2)

On 15 July 2008, at an Annual General Meeting (AGM), minority

shareholders questioned the board about the companys financial losses, as
well as its plans to delist the company from SGX.

The board declared that a privatisation exercise is solely the decision of the
majority shareholder.

The board said it owed a fiduciary duty to shareholders, which is to look

after the business of the company.

Attempts to vote against standard resolutions such as advance payment of

directors fees were defeated, because of the Tang familys majority holdings

Third Privatisation Attempt:

Voluntary Delisting (1)

On 8 May 2009, the Tang brothers made their third privatisation attempt
through an investment holding company

The remaining shareholders were offered S$0.83 per share, which

represented a 22 per cent premium over the companys last traded share
price of S$0.68 prior to the offer, and a 21 per cent discount to the firms net
asset per share price of S$1.05 as of 31 December 2008.

The board recommended that the minority shareholders accept the offer,
based on an evaluation of the offer provided by the independent financial
adviser PwC.

Third Privatisation Attempt:

Voluntary Delisting (2)

At an Extraordinary General Meeting (EGM) held on 31 July 2009, minority

shareholders questioned if the offer was reasonable, given that the shares
had closed at a price above the offer at that point in time.

Nonetheless, the board retained its recommendation, saying that market

prices typically varied.

This was despite earlier statements by the Tangs saying that the
privatisation offer was to allow shareholders to monetize the value of their
investments at a premium over its historical trading prices.

Third Privatisation Attempt:

Voluntary Delisting (3)

Doubts were raised about the independence and neutrality of the CEO of the
company at the time, Foo Tiang Sooi, because he was personally related to
Tang Wee Sung.

Foo had worked under Tang from 1999 to 2006. He and Tang were also
former schoolmates.

However, he dismissed these facts as irrelevant.

Foo also added that he was related to the shareholder who posed the
question, but this fact was irrelevant as well.

Third Privatisation Attempt:

Voluntary Delisting (4)

Another shareholder called for a vote of no-confidence against the board

chairman.

After consulting with legal advisors, the board rejected the motion, with the
chairman saying that the action was an attempt to frustrate the meeting.

Even as shareholders tried to probe further, the chairman called for the vote
to be taken.

The resolution to privatize the company was passed with 96.25 per cent of
votes in favour of the proposal.

Key Area of Controversy:

Tangs Plaza

Under Rule 26.2(a) of The Singapore Code on Takeovers and Mergers, a

property which is occupied for purposes of the business must be valued at
the open market value for its existing use.

During all three privatisation attempts by the Tang brothers, the offer price
reflected an undervaluation of Tangs Plaza.

PwC stated that the property was valued at S$340 million on 25 May 2009.

In contrast, minority shareholders contested that the site was easily worth
at least S$400 million, according to an independent valuer.

Discussion Questions
1. In cases of companies where there are controlling shareholders, explain why the
interest of controlling and minority shareholders may diverge, using the CK Tang case as
an example.
2. Should independent directors be primarily concerned with the interests of the minority
shareholders?
3. Evaluate the independence of C.K. Tangs board during the third privatisation attempt.
Do you think this affected the actions of the board during the privatisation process?
4. Do you believe that the basis of valuation was fair? Explain.
5. With regards to the privatisation episode, suggest improvements that would help
protect minority shareholders in the future.
6. C.K. Tang used three different privatisation methods. Explain how these different
methods work and the pros and cons of these different methods from the viewpoints of the
shareholder(s) wanting to take a company private versus minority shareholders who may
prefer thatthe company remain listed.