By Mak Yuen Teen

On March 30, Singapore Post (SingPost) announced its exit from yet another investment made by the previous board and management – the sale of its 27 percent stake in Postea, Inc. in the US for US$100,000 (S$145,000). The net book value of Postea was US$306,000 (S$443,000). SingPost said the sale is not expected to have a material effect on its net tangible assets or earnings per share for the financial year ending March 31, 2020.

The announcement did not receive much attention – certainly not the same attention as its exit from its investments in TradeGlobal and Jagged Peak last year. But it is just the latest example of the poor investments made by the previous board and management. Let’s look at the chronology of this investment.

It was first announced on May 28, 2009 as a 30 percent investment through a wholly-owned subsidiary of SingPost. The consideration included cash of US$9.4 million, with US$6.4 million payable immediately and US$1 million per year payable at the end of 2009, 2010 and 2011. In addition, there was non-cash consideration of US$24.3 million comprising licensing of intellectual property rights in SAM, SAM PLus, Post21 and VPost to Postea. The total consideration was S$43.1 million. SingPost did not disclose the profitability or net asset value of Postea so it is not possible to assess the premium or multiple paid to acquire Postea.

The acquisition was completed the following day. It is unclear what due diligence was done before the company announced that it was investing in Postea on May 28, 2009.

Following the investment, Michael J Murphy, the founder, CEO and substantial shareholder of Postea, joined the SingPost board on August 7, 2009 as a non-independent non-executive director. Mr Lim Ho Kee, Chairman of SingPost, joined the board of Postea, which was now an associate company. In the 2009 Annual Report, it was disclosed that Mr Murphy was to be given special recognition as a SingPost director, and he was paid an additional S$50,000 for “detailed strategic guidance [to management] on information technology transformation and on innovation for the changing landscape of the Postal business”, which was considered to be beyond the normal scope of his director duties.

Between FY2010 and FY2012, there were a series of interested person transactions between SingPost and the Postea group, mostly involving purchases of goods and services by SingPost from Postea. There were purchases of S$248,000 in FY2010,  S$20.168 million in FY2011 (including a 7-year usage-based service contract worth S$17.6 million), S$1.393 million in FY2012, and S$13.227 million in FY2013. In addition, SingPost made loans of S$1.539 million to the Postea group. Sales from Postea to SingPost amounted to only S$709,000 in total.

In FY2011, the investment in Postea was written down by S$10.3 million to S$32.759 million, based on an external evaluation of the non-cash consideration by Postea, according to SingPost’s annual report. In other words, it appears that after the consideration was determined at the time of the investment, Postea subsequently assessed that the licensing of the IP rights provided by SingPost was not worth as much as had been agreed upon. Based on the evaluation by Postea, SingPost wrote down its investment.

In FY2015,  SingPost’s stake in Postea was diluted from 30% to 27%. Mr Murphy resigned from the SingPost board on February 23, 2017 “to assume new responsibilities on other boards”. In FY2017, SingPost took an impairment charge of S$20.5 million for Postea as a result of Postea management making material changes to its business projections – suggesting the previous projections upon which SingPost based its investment decision on was far too optimistic.

To summarise, what started as a S$43.1 million investment in 2009, had been written down at least twice – by S$10.3 million in FY2011  (based on an evaluation by Postea) and by S$20.5 million in FY2017, and is now to be sold for just S$145,000. Clearly, there has been a considerable loss from the investment in Postea. Not to mention questions that may arise about the value for money of the purchases from Postea, and the terms and repayment of the loans to it.

There seems to be no end in sight to the troubles of SingPost. Its share price has fallen from $1.80 at the beginning of December 2015 to just $0.62. COVID-19 has added to its woes like for most other companies, but it was already down to about $0.92 in early January.

Much of its woes are due to its string of disastrous acquisitions. Huge premiums were paid for many of them, with two of the most expensive flops – TradeGlobal and Jagged Peak – bought just before the old board left. Postea is just the latest flop to be swept off its balance sheet.

While I would not hold the current board and management board responsible for the woes caused by the previous acquisitions, shareholders must wonder – what about all the other investments especially those made between 2011 and 2015 and for which huge premiums were also often paid, and where in some cases, there were conflicts of interest?

The destruction in shareholder value is hard enough to take – the lack of accountability just adds salt to the wound.