D-Mark meets and we take notes.

D-Mark meets and we take notes.

Last week we wrote about D-Mark at our Newsflash front page column. We felt a "no" vote would be fairest to the minority shareholders. But it was not to be so.

In the half hour prior to the meeting some shareholder distributed copies of the local business news article which had a generally positive reception from the independent shareholders approached. This article stated with substance that D-Mark company was being charged too much for the purchase to be now voted on.

However one party said he was pessimistic for the outcome as voting papers had not been distributed.

The 4 board members took their seats , with no independent director present. Mr. Sa-ngun Jantaranukul looking smooth and suave entered at the last minute, beaming to the audience of 40 which appeared to be mostly company employees, and took the center seat in the front row.

After the chairman had presented and defended the proposal, question time was opened. Two shareholders, one of whom represented a fund were quite critical of the land overvaluation. (see our Newsflash article of August 2nd. At this point Mr. Jantaranukul turned his chair towards the critics and took over the defense. He said that the valuation of 70,000/rai was too low as it was hard to find a big piece of land like this and he had allowed many years of rent-free occupation. He addressed the critics tolerantly, applying his best "baak waan" (sweet mouth) and finally to show what a good guy he was, he offered a B5,000 per rai discount which appeared to placate one of the protagonist's while the other went off to phone his fund manager for a decision. We were stunned that the SET reps. allowed the connected shareholder to go into negotiation and offer from the floor, new terms during the meeting to the two objectors.

However , some felt that this was just a side-show as far as the result was concerned. One party asked why they did not have voting papers and how many eligible votes were in attendance? There were 8.4m, and we were all told that papers would only be distributed if anyone said they wanted to vote against the deal. Mr. Jantaranukul knew he had the numbers and just wanted to get all one side with the 5 million offer. When the fund representative returned we were asked if anyone wanted to vote against the deal to raise their hands. One and one only, lonely shareholder, raised his hand.

A large proportion of the votes present belonged to directors, employees and other close associates of the company. Confidentiality was firmly denied by voting papers being kept on the directors desk, available by publicly declaring your objection. Whoever might have been wavering on the deal swallowed their reservations and went along with the Thai way of compromise. Too often Thai people just respect the rich and powerful because they are just that. Most people prefer not to show objection. The Bt5m discount was just the face-saver the two objectors needed to become co-operative with a force too powerful to defeat.

Too bad for D-Mark as here is one other company we now firmly rate "avoid"! Our eyes and ears are ever open and we will never shy away reporting what we believe are at best odd practices. (Please see original "protest case" just below)

Best Regards,

Paul A. Renaud.

www.thaistocks.com

------------------From our Newsflash article as published on August 2, 2000.

D-Mark (9.80) is about to decide on Aug.4th and we say vote "no". However though disunited, small investors still hold some 67% of this company at end of '99. Yet, the only power they have is the power to refuse a bad proposal. It will be interesting to see if those that try to use this power to protect themselves from possible exploitation can succeed this coming Friday.

On August 4th at 10 a.m., D-Mark a smaller cap. stock in the Agri. sector (we once brought to your attention -while never advocated the shares), had an extraordinary general meeting to vote on a "connected transaction" with SriThai Pasusat Co Ltd, their connected company.

The Jantaranakul family group control the management of Thai-Denmark Swine Breeder (D-Mark). Some 27% of the shares are controlled by them and hence excluded on Friday's voting on whether to approve a pig farm purchase from a company the Jantaranakul's own.

The deal as proposed by the management (owners) is to approve for a payment of B322 million Baht for land and buildings which have been assessed by the appraisal as being worth only around B259 Million Baht.

The management and owners want Bt 99,850/rai for land that is worth just Bt 70,000/rai in the chosen valuer's professional opinion. Then the family want a round figure of Bt180 million for construction which has been valued at Bt159 million. We don't think minority shareholders should accept the Jantaranakuls proposal.

We think, minority shareholders should vote a clear, no. Further, the company has assets of B700 and debt of Bt370m , is being expected to take over the Bangkok Bank mortgages, totaling Bt265m and add another B60m for working capital and thereby this means for D-Mark, to almost double their present borrowings to nearly Bt700m!

Since the company only made Bt21m profit last year the extra interest burden could prove to be unwise. The whole proposed transaction is of itself a strange story. For the last 5 years it has been put to shareholders as follows:"Lard Takien Farm is located on a land of which the right for use has been transferred free of charge to D-MARK from an advisor to D-MARK board of directors who has been permitted by a financial institution to use the land". No prizes for guessing who is who. It was a good deal for a few years, but we all know that there is no such thing as a free lunch".

Currently the "independent advisor" (as it took long to find someone to take this job that the Extraordinary General Meeting had to be postponed from June 6 to Aug 4), comes along with his report: He cuts down the Bt63m gap between cost and value to about Bt26m by applying some mysterious present value calculations which are not disclosed. They then go ahead to say that they think the transaction is still reasonable because the company is already using the assets and it would save them risk and disruption. However they also say that the company has the capability to service the debt, and this as seen as a benefit.

We are sure it is seen as a benefit to Bangkok Bank, but why should it be seen so by shareholders when the cost of financing the purchase will take a major slug out of D-Mark's earnings? Certainly, with latest years return on assets at under 3%, D-MARK are not in a position to pay more interest than necessary because of an overpriced purchase. From this independent advisor's language he seems to have been talked into this by his fee payers, D-Mark management, and perhaps by the bank as well?

The interest of small shareholders are not stood up for in this case we believe, not even by their representative. And so we say, "No Monsieur"! Shareholders of D-Mark should vote against this on Friday!

The SET rules require that 75% of minority shareholders give approval to the purchase. On the face of it this is a good check. Still the individual holdings of shareholders are often small and don't justify spending a half day to travel and attend a meeting. Companies often re-hold meetings again and again till "shareholder fatigue’sets in. And with the eventual fall-off in numbers they get a few tame shareholders and so can push through the proposal on a small volume. In the present case we will have to see what happens on Friday. Maybe some good Thai newspapers should attend this meeting!?

--Will enough small shareholders show up to register their opinions?

--Will all those voting be truly independent?

--Will a minority be allowed to short-change the majority through their control of the company and the meeting?

The answers in this case are important as this is a problem found to affect a few of the family controlled companies on the SET. Such happenings discourages many good people from investing in them -despite very attractive valuations! Often the "excuse" in not owning smaller cap’s in Thailand is because a few unfair and abuse practices. But we believe this is the exception much more then the rule and since we have been pounding the table on these value shares for a very long time; be assured we will point out questionable practices brought to our attention.

The following was just reported to the SET by D-Mark on August 3, '00. "Mr.Suratin Pisitkasem, an independent director of Thai-Denmark Swine Breeder Public Company Limited, had resigned from the company for his own bussiness since August 1,2000." ***