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Total liabilities and shareholders' equity 121.23 75.58 69.53 Total revenues 152.35 96.96 127.02 Total expenses 115.14 63.65 69.75 Net profit (loss) 24.86 24.02 57.27 Net profit (loss) per share (Baht) 49.72 48.03 114.54 Book value per share (Baht) 160.99 128.03 110.95 Notes : Par value at Baht 100 per share 3.10 Shareholdings The shareholders of BJT as at 26th January 2007 are as follows: Name No. of shares % of holding 1. Pathum Thani Water Co., Ltd. 499,994 99.99 2. Miss Phonthipha Chirawichit 1 0.00 3. Miss Tongthip Hannapha 1 0.00 4. Miss Orawan Ruchithet 1 0.00 5. Miss Alisa Prasertdecho 1 0.00 6. Miss Warisra Chaimongkhon 1 0.00 7. Mr. Thawatchai Limwong 1 0.00 Total 500,000 100.00 3.11 The Board of Directors The Board of Directors of BJT as at 2nd February 2007 is as follows: Name Position 1. Mr. Vorawut Anurakvongsri Director 4. Reasonableness of the transactions 4.1 Objectives of the entering into transactions and the necessity to enter into transactions According to the Board of Director' Meeting No. 6/2006 which held on 25th December 2006, resolved to grant approval for the Company to sell 143,062,000 ordinary shares in TTW to the general public at the price equal to TTW's public offering price (CK invested in TTW by holding 1,549,839,400 ordinary shares, representing 47.69 percent of TTW's paid-up capital of Baht 3,250 million. In this regard, TTW will issue its ordinary shares for public offering by allowing its existing shareholders to jointly offer their ordinary shares for sale in proportion to the shareholding ratio concurrently with TTW's public offering of newly issued ordinary shares, so as to ensure that TTW is qualified in accordance with the rules of the SET, namely, having its share distribution of minority shareholders in aggregate not less than 25 percent of its paid-up capital. It is stated in the Filing Form filed by TTW to the SEC that according to TTW Board of Directors meeting No. 2/2006 on 18th August 2006, TTW has a policy to take over PTW as its subsidiary within five years and has included this project in its one-year plan. The objective of this is to mitigate the conflict of interest that may arise from the competition between TTW and PTW, which are related companies as they have the same major shareholder, i.e. CH. Karnchang Plc. 4.2 Comparison of the advantage and disadvantage of the entering and non-entering into transactions that may affect the Company in various aspects Advantage 1. The transaction will enable a shareholding restructure in the tap water business of the CK group and will help eradicate the conflict of interest potentially incidental to the competition between TTW and PTW. 2. After the merger of TTW, which is the private tap water producer and distributor with the largest capacity in the country, with PTW, which is the second biggest producer after TTW, the production capacity of the merged company will tremendously outstrip those of its competitors. Moreover, after listing on the SET, the merged company will have a high market capitalization, hence a magnet for local and foreign institutional investors. 3. The merger between TTW and PTW will create economies of scale through a sharing of certain resources and/or saving of some double expenses. For instance, the company can procure chemical substance in a bigger lot that will give it a bargaining power for a greater price discount, or they may share the human resource unit. 4. In any future bidding for a tap water concession project, CK can designate only one between TTW and PTW to join the bid and will no longer face the public agency's skepticism about the two companies having the same major shareholder which can possibly lead to bid collusion. Disadvantage 1. Both TTW and PTW may be closely watched by the concerned public agency or state enterprise if they join in the same bid competition for any future tap water concession project, hence a possible loss of business opportunity. 2. TTW's recapitalization plan to accommodate the capacity expansion to serve the growing tap water demand may have to be delayed until after the completion of PTW's capital decrease and the corporate restructure of TTW after having PTW as its subsidiary. 4.3 Comparison of the advantage and disadvantage between the entering into transaction with connected person and the entering into transaction with third person. Advantage The fact that CK, PTW and TTW have common directors and shareholders and the executives of the three companies have had a good relationship helps to facilitate the transaction price negotiation. On the contrary, to conduct the transaction with an outsider may take longer time and incur additional expenses on due diligence review in terms of financial status, legal status and asset quality. Disadvantage To make the transaction with a connected party may generally give rise to a conflict of interest such as the power of negotiations, prices and other conditions, unless the price and condition are the same as those of normal trade done with an outsider or persons without a vested interest are involved in the transaction. The reasons why the Company does not enter into a transaction with third person The purchasing of PTW ordinary shares is for restructuring and to reduce a conflict of interest which may occur in the future prior an Initial Public Offering and Listing of TTW. Moreover, Tap water production and distribution is a large basic infrastructure business that requires huge capital, proper technology and the operator's proven track records. Based on the Department of Water Resource's information, there are a total of 81 local private operators of tap water business and only a few of them are large operators with a capacity of more than 15,000 cubic meters per day and number of users of more than 8,000. Meanwhile, all other operators have a much lower capacity than both PTW and TTW. As a consequence, to make the transaction with an outsider is not easy and will not generate the optimal benefit to the business and the shareholders. Further, to do the transaction with an outsider, the Company may have to acquire the information about the assets and liabilities by itself and may thus encounter a constraint on access to the information. It may accordingly have no in-depth information available before proceeding with the negotiation and may take some time to study the information and also bear extra expenses. 5. Fairness of price and conditions of the transactions After reviewing the information and documents obtained from the Company and other relevant information. The Financial Advisor's opinion is as follows: 5.1 Reasonableness and appropriateness of the indicative selling price We compared the indicative selling price with prices calculated by various valuation approaches and also reviewed market comparables. The results of our review are as follows 5.1.1 Book Value Per Share Approach This approach considered the Company's book value from its financial statements at a particular point of time, but it did not consider the value of the firm from its future operating performance or the impact from economic conditions and industry trends. Using the internal financial statements of PTW as at 31st December 2006 which were unaudited by the auditor, the following are details of this method: Shareholders' equity as at 31st December 2006 (482.73) Baht millions No. of shares on issue 11.02 Million shares Book value per share (Baht) (43.80) per share Based on this approach, the book value is negative Baht 43.80 per share. We do not, however, believe this method is a reasonable guide to the true value of the Company as it does not reflect the ongoing earnings of the business. 5.1.2 Adjusted Book Value Per Share Approach This approach considers the Company's adjusted book value after adjustments regarding changes in shareholders' equity including major events which occurred after the date has been specified in the financial statements such as the value of its assets based on independent assessments and the effect this has on shareholders' equity. This approach did not consider the value of the Company from its future operating performance and the impact from economic conditions or industry trends. As at 25th January 2007, the Company's registered and paid-up capital were Baht 2,752 million divided into 27.52 million ordinary shares (par value at Baht 100 per share). Subsequently, on 26th January 2007 the Board of Directors Meeting passed a resolution to decrease its registered capital by Baht 1,552.00 million from Baht 2,752.00 million by way of decrease of 15.52 million shares, thereby remaining the registered capital of Baht 1,200.00 million divided into 12.00 million ordinary shares. Such capital reduction was to decrease the number of shares according to its shareholding ratio in PTW as well as to reduce the accumulated loss. On 6th February 2007, the Extraordinary General Meeting of Shareholders of the Company resolved to approve such registered capital decrease which is currently in process. It is expected to complete the decrease of the registered capital in June 2007. Adjusted value From the said events which were the events occurred after 31st December 2006 and also effect to the Shareholders' equity significantly. The adjusted book value per share after adjustments in shareholders' equity of PTW as at 28th February 2007 is as follows: (Unit : Baht) Internal account as at 28th February 2007 Registered and paid-up capital 2,752,000,000.00 Accumulated loss (1,912,411,622.30) Shareholders' equity 839,588,377.70 Adjustments considered appropriate: Less : Capital reduction and reduce accumulated loss (1,552,000,000.00) Financial statements after capital reductionRegistered and paid-up capital 1,200,000,000.00 Accumulated loss (360,411,622.30) Shareholders' equity 839,588,377.70 Book value per share 69.97 Notes : Par value at Baht 100 per share Based on this approach, the adjusted book value is Baht 69.97 per share, or 78.92 per cent lower than the indicative selling price. 5.1.3 Price to Earning Ratio Approach, PER This approach evaluates the share price by multiplying the Company's earnings per share ("EPS") calculated from the financial projections at the end of 2007 with the price to earnings (P/E) ratio of Eastern Water Resources and Development Plc. ("EASTW") during different periods between 30 and 180 business days prior to 29th March 2007. All quarterly results and quarterly historical earnings in EASTW provide an acceptable base of comparison. Comparison with Eastern Water Resources and Development Plc. Calculation Time Interval Average PER Ratio of EASTW Resultant Price Period Max. Min. Average (Baht) 30 business days 15 Feb. 07 - 29 Mar. 07 13.66 13.13 13.40 81.44 60 business days 4 Jan. 07 - 29 Mar. 07 14.09 13.13 13.61 82.75 90 business days 17 Nov. 06 - 29 Mar. 07 14.86 13.13 14.00 85.09 120 business days 5 Oct. 06 - 29 Mar. 07 14.86 13.13 14.00 85.09 180 business days 10 Jul. 06 - 29 Mar. 07 14.86 12.88 13.87 84.33 Source : SET SMART We use EPS for the estimated four preceding consecutive quarters from 1st January to 31st December 2007, which was Baht 6.08 per share. Based on this approach, the Company's share price is between Baht 81.44 and 85.09 per share, or from 74.37 per cent to 75.47 per cent lower than the indicative selling price. However, we do not consider the Price to Earnings Ratio of companies in EASTW to be an appropriate approach to determine the market price of the Company's shares, as the business operations of EASTW differ from those of PTW. By comparing between PTW and EASTW, a water supplier to industrial estates in the eastern region, it is usually misunderstood that the two companies have engaged in a similar business. In fact, EASTW operates a raw water business by transmitting raw water obtainable from the Royal Irrigation Department to industrial factories in the eastern region. PTW itself produces boiled water or tap water undergoing both chemical treatment (sedimentation process with addition of chemical substance) and physical treatment (filtration process) and then transmits the treated water directly to PWA. 5.1.4 Price to Book Value Ratio Approach, P/BV This approach evaluates the share price by multiplying the book value per share calculated from the most recent financial statements with the average price to book value (P/BV) ratio of EASTW between 30 and 180 business days prior to 29th March 2007. We used PTW's adjusted book value per share as at 28th February 2007, which was Baht 69.97 per share. Comparison with Eastern Water Resources and Development Plc. Calculation Time Interval Average P/BV Ratio of EASTW Resultant Price Period Max. Min. Average (Baht) 30 business days 15 Feb. 07 - 29 Mar. 07 1.58 1.48 1.53 107.05 60 business days 4 Jan. 07 - 29 Mar. 07 1.64 1.48 1.56 109.15 90 business days 17 Nov. 06 - 29 Mar. 07 1.79 1.48 1.64 114.40 120 business days 5 Oct. 06 - 29 Mar. 07 1.79 1.48 1.64 114.40 180 business days 10 Jul. 06 - 29 Mar. 07 1.79 1.48 1.64 114.40 Source : SET SMART Based on this approach, the Company's share price is between Baht 107.05 and 114.40 per share, or from 65.54 per cent to 67.75 per cent lower than the indicative selling price. We do not consider the Price to Book Value Ratio approach to be an appropriate approach to determine the fair value of an operating Company's shares as the business operations of EASTW differ from those of PTW. 5.1.5 Discounted Cash Flow The Discounted Cash Flow ("DCF") approach is an appropriate methodology when: 1) Accounting for specific assumptions regarding the nature and timing of future economic benefits arising from activities of a business and; 2) When the nature of the valuation project regards the business as a going concern for which the underlying drivers of profitability can be predicted within a reasonable degree of certainty. The purpose of this valuation is to present the present value of the Company assuming that the Company is operated under the same management and business policies as in the past. As a result, our assumptions are based without taking into account the acquirer's new business policies. The principal methodology adopted by Financial Advisor in regard to the Company's DCF model is detailed below: 1) The Company's consolidated future free cash flows are forecast explicitly from 1st January 2007 to 14th October 2023; 2) There is no calculation of Terminal Value of the Company. Due to the Company shall transfer the ownership over the assets it has invested in to the government at the end of concession period. Discount Rate To discount the Company's projected free cash flows, we applied the Capital Asset Pricing Model ("CAPM"). The CAPM is a widely held method of determining the appropriate risk adjusted rate of return ("the cost of equity" or "Ke"), as required by well-diversified equity investors. Therefore, the discount rate calculated based on CAPM, is as follows: Ke = Rf + ? (Rm - Rf) Rf : Risk free rate was based on the yield to maturity of Thai Government Bonds maturing in 17 years on 29th March 2007, equivalent to 4.59% p.a. (based on The Thai Bond Market Association). Rm : Expected return on the Market Portfolio, equivalent to 13.07% (data from Bloomberg as at 29th March 2007). ? : Beta coefficient is the variable used to measure the systematic risk of the EASTW's stock (similar business to PTW) based on its trading against the exchange index for a certain period, equivalent to 0.5260. Based on the above, we have calculated the cost of equity, as follows: Ke: 4.59 + 0.5260 x (13.07 - 4.59) = 9.05% Since PTW is not listed on the SET, we have adjusted the Ke upward by 20 per cent to absorb such non-listing risk, leading the Ke to be revised to 10.86 per cent. The share price of PTW valuated based on the above data and the assumptions below will be as follows: The key assumptions in our PTW's valuation are as follows: 1. PTW's customers PTW engages in the production and distribution of tap water in Pathum Thani - Rangsit areas under concession from PWA, which is PTW's sole customer. 2. Revenues from sales of tap water We have estimated the tap water fee, based on the inflation rate (assuming the inflation rate will remain constant at 3% per year between 2008 and 2023 which is the end of the concession period). Average tap water fee is set at Baht 9.6204/cu.m. (this is the actual rate prevailing in 2006 which is used as the base year). Under the tap water supply contract signed with PWA, the tap water fee for 2006 is Baht 9.90/cu.m. (the rate is as expressed in the invoice, exclusive of VAT, for tap water supplied after discount). For year 2007, the fee will be Baht 10.34/cu.m. on average (based on the actual data during January-February 2007). Such rate was first adjusted on 1st January 2007 by the calculation formula specified in the contract signed with PWA on 15th September 2006. The average production output from 2006 to the end of the concession period in 2023 will be as follows: - 2006 = 0.294 million cu.m. / day (based on actual) - 2007 = 0.330 million cu.m. / day - 2008 = 0.345 million cu.m. / day - 2009 = 0.358 million cu.m. / day (from 2009 onwards the projected average output will equal to the minimum off-take quantity of 0.358 million cu.m. / day). The minimum availability rate throughout the concession period not exceeding 0.288 cu.m. / day. On 15th September 2006, it signed another contract with PWA for an additional supply of 70,000 cu.m./day of tap water. 3. Cost of tap water sales In 2006, PTW will still bear the management fee under the O&M agreement made with OPCO on April 23, 1999 at an average of Bt. 2.82/ cubic meters (this is an actual figure prevailing in 2006 which is the base year). PTW will also have to absorb the cost of service incurred by OPCO. In 2007, it will no longer have to bear this cost, following the payment of the O&M agreement cancellation fee to OPCO on January 26, 2007. In 2007, PTW has managerial costs including salary, security, chemical, energy, disposal of sludge, water quality taste and other expenses. PTW will bear the management fee at Bt. 2.40/cu.m. (based on the actual figure prevailing in January and February 2007 and O&M Agreement between PTW and BJT which signed on 26th January 2007) under our assumption that the inflation rate will remain constant at 3% per year between 2008 and 2023. The main cost of tap water sales is R&M. Other costs include maintenance of machinery and equipment and miscellaneous expenses, which (more)