Last week, I covered the commitment made by the controlling shareholders of Monde Nissin [MONDE 8.25, down 1.6%; 43% avgVol] to “top-up” accumulated impairments, over a 10-year span, suffered by MONDE’s meat alternatives business with a one-time cash payment in 2033. The top-up is subject to a few limitations, including a cap on value (12% of the value of MONDE’s outstanding shares), and the complete release from any top-up obligation if a controlling stake in the meat alternative business is sold to a third party. Glossing over a lot of detail, my reaction was one of confusion: who is the audience for this commitment? Considering the size of the impairment that the meat alternative business has already suffered in FY22 (P20 billion), and the uncertainties that abound both in terms of MONDE’s stock price in 10 years’ time and in the overall vitality of the meat alternative industry in 2033.
> Reader response: Generally, readers seemed to share my confusion. At least that’s what I could infer from the dismissive tone that most used to discuss the commitment. One reader thought that MONDE was falling victim to the sunk-cost fallacy (throwing good money after bad). Another that the initial high value of the meat alternative industry was due to the fad-like nature of the market, and that the value will continue to drop as the industry comes under greater regulatory and financial scrutiny. Most readers avoided engaging with the terms of the commitment directly and instead voiced negative opinions of MONDE’s business and its performance on the PSE since joining the exchange.
> Critical pushback: One reader, in particular, seemed to take offense with my implication that the safeguards (as communicated) are insufficiently robust and detailed for shareholders to rely on. This reader wanted to underline that, based on the media briefing, it appears the controlling shareholders acknowledge the moral hazard of the top-up as written, by way of the safeguards that were actually included in the top-up. Specifically, the reader pointed to the mechanisms that would push approval of any sale transaction through MONDE’s Related Party Transactions Committee (RPTC), which is made up entirely of independent directors, and that the current independent directors are “all known in the local business community for their probity.”
MB bottom-line: We could have a very long debate about independent directors, but I can side-step that debate entirely by pointing out that we have zero guarantees that the roster of current independent directors will be the set of directors on the RPTC in several years’ time if a sale of the meat alternative business is actually transacted. Independent directors are elected by MONDE’s shareholders each year, just like the rest of the directors, and the controlling shareholders generally hold all the cards when it comes to the election of these individuals. What might look like a great set of noble and wise independent directors now could look a lot different next year, three years from now, or eight years from now. The composition of the RPTC, the main safeguard meant to protect minority shareholders in this deal, is not something that the minority shareholders can control and is not something that anyone now could reasonably rely on when talking about business deals that could happen at any time over the next decade. I don’t know that this is the challenge at the heart of the disconnect between the top-up and retail’s largely negative response to it, but it feels like part of the same soup of concerns. I haven’t heard from a single reader, or spoken to a single investor, who has spoken positively about the top-up from a value perspective. Maybe we just don’t know enough about it to be impressed. Maybe MONDE could do a better job of selling the top-up. Or, maybe, it’s just not that great of an idea. I guess time will tell.
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