A Letter To Nam Tai's Board Of Directors

Summary

• Nam tai, a property developer in China is deeply undervalued.
• IsZo, an activist investor recently won a key battle in British Virgin Islands Court.
• A new Board of Directors can potentially unlock billions of dollars in the Company.
• Investors may be well served by writing to Nam tai andurging them to cooperate with Nam tai.

Nam tai (NTP), a property developer in China is deeply undervalued. The purpose of this article is not to demonstrate the value. For those who want to learn about the company’s background I recommend the following article. For a historical background you can read this post.

Emergence of an activist investor

In the Spring of 2020 activist investor IsZo attempted to call a Special Meeting and to try to install its own Directors. The biggest shareholder at that time was Kaisa, a property developer based in Hong Kong. Kaisa had most of its own representatives on Nam tai’s Board. The company’s CEO at that time was the brother of Kaisa’s founder. Kaisa with a market valuation of about $2 billion competed with Nam tai with a market valuation of about $350 million, in property development in Shenzhen. They also controlled Nam tai. It is akin to Facebook (FB) having total control of Snap (SNAP), a much smaller competitor. The conflict of interest is obvious to even casual investors.

IsZo along with many other shareholders believed that Kaisa was not acting in the best interests of minority shareholders. In September of 2020 IsZo delivered requests to call a Special Meeting. In order to call a Special Meeting 30% of shareholders must vote in favor of it. IsZo had garnered more than 40% of the shares.

To thwart IsZo’s campaign, on October 5, 2020 Nam tai massively diluted its shares by placing about 16 million shares with Kaisa and 2.6 million shares with an affiliate. The dilution was done at a price of $9.15, an insultingly low price which I explain in the letter below. The dilution increased Kaisa’s stake to close to 45% thus making it virtually impossible for IsZo to win control of the Board. IsZo sued in British Virgin Islands (BVI) Court and prevailed on March 3, 2021. Now Nam tai is threatening appealing the Court’s decision.

I believe investors would be served well at this point to urge Nam tai to cooperate with IsZo in order to make a smooth transition in the Board. Specifically, Nam tai should not appeal the Court’s decision as they have threatened to do. The company should cease spending shareholders’ money on hiring lawyers and public relations firms to further the interests of Kaisa, the largest shareholder. Ultimately a change in control of the Board will unlock billions of dollars of value that has been hidden until now. For the first time in seven years Nam tai posted substantial revenues and profits last quarter after the completion of one of its projects. This is just the beginning but the company needs to strike a more cooperative tone with investors who are genuinely looking after the best interests of all shareholders. Below is the letter I wrote to Nam tai’s Board. You can forward your own letters by contacting the company’s investors relations: [e-mail]

March 4, 2021

Dear Nam Tai Board,

I have been a Nam Tai shareholder since 2007 and have followed the company very closely since then. I met the company’s representatives and toured the properties in June of 2018. I am writing you to urge you to execute your fiduciary duties and act in the best interests of all shareholders. Specifically, I hope that you respect the Court’s ruling in the recent case and not to appeal the decision. Furthermore, I urge you to facilitate a smooth and orderly transition in the Board by installing the six independent nominees put forth by IsZo.

It is abundantly clear that investors favor IsZo’s proposed changes to the Board. Consider the biggest price and trading volume changes in the stock in the six months and the news associated with each:

1. On March 3, 2021 the BVI Court rules in favor of IsZo. The stock surges 21%.
2. On October 5, 2020 NTP announces massive dilution and placement of shares with Kaisa. The stock plunges by 26%.
3. On September 11, 2020 IsZo delivers requests to call a Special Meeting. The stock rises 18%.

The stock is now trading at about a 20% premium to the $9.15 price that you issued shares at last October. Your lawyer in the trial stated that IsZo is perhaps too optimistic about the value of the company. Kaisa’s actions do not support that allegation. About three years ago Kaisa bought shares from Mr. Koo at $17 and continued with subsequent share purchases in the open market at prices well above $10. Kaisa told its shareholders that Nam tai was worth $20.10 in a filing dated August 2, 2017.

“In determining the consideration, the Company took into account three independent valuation reports of the Land. These reports are available at the website of the Target Company (http://www.namtai.com/investors#investors/real_estates). Based on (i) the average valuation of the Land of RMB13,490 million assuming completion of the redevelopment of the Land took place on the respective valuation dates; and (II) the cash on hand and the net assets as shown in the Target Company’s 2017 first quarterly report, the Company estimated that the adjusted net asset value per Target Share was approximately US$20.1. The consideration of US$17 per Target Share represents a 15% discount to the estimated net asset value per Target Share.”

Since Kaisa’s purchase in 2017, Inno Park has been completed on schedule at below projected costs. Nam Tai Technology Center is on track for completion and Shenzhen metro area has been thriving. Real estate prices have risen in the Shenzhen area undisputedly in the past four years. Investors know that $9.15 greatly undervalues the company. Many of my fellow investors are dismayed that our Company is spending valuable resources on litigation that is harming shareholders. A change in the Board will very likely lead to a rise in the stock price. If the company is still in need of cash it will be able to do so at much more favorable valuations than at the insultingly low price of $9.15 that the Board recently attempted. Your cooperation with IsZo will ultimately benefit all shareholders including Kaisa.

Sincerely,

Houman Tamaddon