About C$.$K$.$ TangC.K$.$ Tang Limited is a Singapore$-$based company founded by Tang Choon Keng in $1932.$ The company is in the business of departmental store retailing and general merchandising. Since $1958,$ the company has been operating at its flagship building, Tangs Plaza, along Orchard Road$1.$ C$.$K$.$ Tang is a company characterised by the presence of a major controlling shareholder. For example, in June $2003,$ then CEO$-$Chairman Tang Wee Sung, the second son of the founder, owned $69\mathrm{.}95$ per cent of the companys shares$2.$In $1975,$ C$.$K$.$ Tang was listed on the then Singapore Stock Exchange, which later became the Singapore Exchange $($SGX$)3.$ However, since $2003,$ the Tang family had been trying to delist and privatise the company$4.$ After two failed attempts, the Tang family finally succeeded and the company was delisted on $24$ August $20095.$In $2011,$ C$.$K$.$ Tang made an offer to about $500$ minority shareholders who had held on to the shares of the delisted company. This offer represented a $15$ per cent premium over its fair value and well above the price offered to other shareholders for the delisting in $2009.$ However, some of these minority shareholders were still unwilling to take up the share buyback offer, and were holding out for a better offer$6.$Board of DirectorsDuring the third and successful privatisation attempt, the board of C$.$K$.$ Tang was chaired by Ernest Seow, a former PricewaterhouseCoopers $($PwC$)$ partner. Apart from Seow, there were three other directors with experience in accounting, business management and the retail industry. Among the four directors, three of them were serving as non$-$executive independent directors.During the companys history, there was at least one Tang family member on the board$7.$ 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.C$.$K$.$Tang: The Fight towards Privatisation $7$C$.$K$.$Tang: The Fight towards PrivatisationWith this development, for the first time in the companys history, therewas no Tang family member on the board.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. This includes reviewing the Groups performance, approval of corporate strategies and promoting high standards of corporate governance. The board delegated some of its functions to the board committees, namely the audit committee, nominating committee and remuneration committee.First Privatisation Attempt: Scheme of ArrangementOn $29$ October $2003,$ Tang Wee Sung offered minority shareholders S$$0\mathrm{.}42$ per share via a scheme of arrangement$9.$ This represented a premium of about $35$ per cent above the average closing price over the last five trading days$10.$ This price also meant a $19\mathrm{.}2$ per cent discount against the companys net tangible assets as at $30$ September $200211.$ However, the resolution failed to pass, as the shareholders felt the offer price was too low and wanted more information on the companys prospects$12.$Second Privatisation Attempt: Unconditional Cash OfferIn December $2006,$ Tang Wee Sung and his brother Tang Wee Kit, offered shareholders S$$0\mathrm{.}65$ per share through Kerith Holdings$13,$ a company equally controlled by the brothers. This second attempt was in the form of a voluntary unconditional cash offer$14.$ The S$$0\mathrm{.}65$ per share offer reflected a $16\mathrm{.}1$ per cent premium to C$.$K$.$ Tangs latest closing price at that time. It also represented a $9\mathrm{.}4$ per cent premium to the companys net asset value, based on its annual report for the financial year ending $31$ March $200615.$ When the offer deadline expired, insufficient acceptances had been received$16.$ The reason was widely believed to be the undervaluation of the commercial property Tangs Plaza$17.$ As a result, the company continued its listing on SGX$.8$On $15$ July $2008,$ at an Annual General Meeting $($AGM$),$ minority shareholders questioned the board about the companys financial losses, as well as its plans to delist the company from SGX$.$ The board declared that a privatisation exercise is solely the decision of the majority shareholder. The board said it owed a fiduciary duty to shareholders, which is to look after the business of the company$\mathrm{.}18$ Attempts to vote against standard resolutions such as advance payment of directors fees were defeated, because of the Tang familys majority holdings$19.$Third Privatisation Attempt: Voluntary DelistingOn $8$ May $2009,$ the Tang brothers made their third privatisation attempt through an investment holding vehicle, Tang UnityThree, which submitted a delisting proposal to the company. The remaining shareholders were offered S$$0\mathrm{.}83$ per share$20,$ which represented a $22$ per cent premium over the companys last traded share price of S$$0\mathrm{.}68$ prior to the offer, and a $21$ per cent discount to the firms net asset per share price of S$$1\mathrm{.}05$ as of $31$ December $200821.$ The board recommended that the minority shareholders accept the offer, based on an evaluation of the offer provided by the independent financial adviser PwC$22.$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$23.$ This was despite earlier statements by the Tangs saying that the privatisation offer was to allow shareholders to monetise the value of their investments at a premium over its historical trading prices$24.$Shareholders also reproached the directors for failing to clarify with the Tangs about their redevelopment plans for Tangs Plaza after its privatisation. They expressed disappointment with the independent directors, saying that they had insufficiently analysed the issue.C$.$K$.$Tang: The Fight towards Privatisation $9$C$.$K$.$Tang: The Fight towards PrivatisationDoubts 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$25.$ However, he dismissed these facts as irrelevant$26.$ Foo also added that he was related to the shareholder who posed the question, but this fact was irrelevant as well$27.$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$28.$ Even as shareholders tried to probe further, the chairman called for the vote to be taken$29.$ The resolution to privatise the company was passed with $96\mathrm{.}25$ per cent of votes in favour of the proposal$30.$Key Area of Controversy: Tangs PlazaThe Singapore Code on Takeovers and Mergers $($the Code$)$ governs all takeover activity in Singapore involving public companies. Under Rule $26\mathrm{.}2($a$)$ of the Code, a property which is occupied for purposes of the business must be valued at the open market value for its existing use. However, Rule $26\mathrm{.}2($c$)$ provides for the case in which such a property is valued for an alternative use. For such a case, the costs of conversion and$/$or adaptation should be estimated and shown $31.$During all three privatisation attempts by the Tang brothers, the offer price reflected an undervaluation of Tangs Plaza$32.$ The board stood by its stand of valuing the property according to its existing use, as there was no intention of deviating from it$.$ One investor had brought up the fact that in C$.$K$.$ Tangs $2007$ annual report, a property valuation report had taken into consideration the redevelopment potential of Tangs Plaza. In response, the boards legal adviser, Yeo Wee Kiong, said it was not legally required to put a redevelopment valuation on the report$33.10$PwC stated that the property was valued at S$$340$ million on $25$ May $200934.$ This was much lower than other nearby sites. In contrast, minority shareholders contested that the site was easily worth at least S$$400$ million, according to an independent valuer. This value did not take into account the potential value arising from redeveloping the site, and did not consider the potential value from sub$-$dividing the site into small retail units and leasing them to specialty tenants$35.$ The board, however, stated that regulators had told the directors that any such redevelopment was not applicable$36.$Unhappiness Amongst Minority ShareholdersSeveral shareholders were unhappy about the perceived undervaluation of the Tangs Plaza site, as well as the fact that the offer price was less than the companys net asset per share. Thus, they met with the Securities Investors Association $($Singapore$)($SIAS$)37.$ SIAS stated that it objected to the exit price and that the minority shareholders had been treated with no dignity$38.$ SIAS had also called for regulators to intervene$39.$Ten shareholders had also signed a petition to SGX and the Ministry of Finance questioning the basis of the valuation on the propertys existing use$40,$ in a bid to convince the regulators to allow them to obtain an alternative valuation report$41.$ SGXs reply was that C$.$K$.$ Tangs move to delist was purely commercial, and that the company had complied with the listing and delisting rules$42.$The Capital Reduction ExerciseOn $19$ August $2011,$ C$.$K$.$ Tang embarked on a capital reduction exercise to cancel out all remaining shares held by minority shareholders. C$.$K$.$ Tang would pay each investor S$$1\mathrm{.}30$ per share, which represents an increase of $56\mathrm{.}6$ per cent on the exit offer in $2009.$ PwC had indicated that the S$$1\mathrm{.}30$ offer is $15$ per cent above its fair market value$43.$ The rationale behind the exercise was to reduce administrative burdens. Additionally, the company reaffirmed that there are no plans for the redevelopment of Tangs Plaza, and the buyout had no hidden agenda.C$.$K$.$Tang: The Fight towards Privatisation $11$C$.$K$.$Tang: The Fight towards PrivatisationHowever, only $39$ per cent of the minority shareholders in attendance agreed to the price for the share buyback, far below the $75$ per cent required. Some minority shareholders cited the undervaluation of the Tangs Plaza property as the reason for rejecting the offer$44.$ C$.$K$.$ Tang would have to do more to convince these shareholders for the buyout to succeed.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$\mathrm{.}2.$ 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$\mathrm{.}5.$ With regards to the privatisation episode, suggest improvements that would help protect minority shareholders in the future$\mathrm{.}6.$ 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 that the company remain listed.