Tuesday, 30 August 2011

EPIC: Majority Shareholder forgot to make a GO!

In The Edge, August 29, 2011 appeared the article “An EPIC lack of transparency”:

“Last week EPIC Bhd. Announced that Lembaga Tabung Amanah Warisan Negeri Terengganu (LTAW) and parties acting in concert had made a general offer (GO) for the shares they did not own at RM 3.10 apiece.

Apart from the GO to existing shareholders, LTAW plan to compensate those who had sold their shares at below RM 3.10 between Dec 10, 2010 and Aug 23, 2011. The cash payment will be the difference between RM 3.10 and the price at which investors sold their shares in this period.

So, why is EPIC so generous?

The trigger for the GO was the completion of the purchase of a 21.6% stake in EPIC from Ahmad Zaki Resources Bhd (AZRB) by LTAW on Aug 23. EPIC’s announcement says the purchase has lifted the equity interest of LTAW and parties acting in concert to 67.24% from 45.67%.

However, the acquisition process had started way back in on Nov 24 last year when LTAW signed a share sale agreement (SSA) with AZRB to buy its stake in EPIC at RM 3.10. The SSA became unconditional on Dec 10, triggering a GO, the latest announcement says.

The fact is, EPIC’s shareholders were not told that the controlling shareholder was obliged to make a GO. It is baffling why the offer was not made as soon as it appeared that the state, acting via LTAW, had triggered a mandatory GO.

In a takeover exercise such as this, transparency and adherence to the rules of corporate governance are of utmost importance. How can we expect compliance from the corporate sector when state authorities do not play by the same rules?”

Oh my, somebody has been sleeping on the job. And that was not the first time as it was already apparent in the 2010 year report:

EPIC Year report 2010

On page 222 (page 132 of the PDF-file) TISB (Terengganu Incorporated Sdn Bhd) owns 40.59% directly and indirectly. This is wrong since TIS’ ATA’ Ashar Sdn Bhd owned 3.89% of the shares and LTAW 0.98% of the shares, so the percentage of indirect controlled shares should have been 45.46%.

Unbelievable as it is, it seems to be an honest mistake, and the good news is that it is rectified, people who sold their shares in the past after Dec 10, 2010 will also receive RM 3.10. I wonder though what they would do if somebody was actively trading in EPIC shares, would he receive the full RM 3.10 every time he sold his shares and bought some back later on again?

If Bursa Malaysia had followed David Webb’s example, they also should have picked up on this mistake.


"Increase transparency by providing a Malaysian database similar to the one David Webb has provided on his website. This will be a useful tool for all serious investors and bring back their attention. Secondly, this will be a very useful tool for the enforcers themselves. Thirdly, journalists can tap from this source for their stories."

On the bad side, this is another GO with “delisting and compulsory acquisition threat”. Again, a GO is good, but I hate the "delisting" threat since Minority Shareholders don't stand a chance to fight it.

The “independent” advisor will most likely follow the wish of the majority shareholders (they do in about 99% of the cases in Malaysia), so Minority Shareholders will not stand a chance. On a side note: I hope that “independent” advices will be abolished soon, but if the Securities Commission decides not to do, then at least I hope they will rename them to “dependent” advices.

The public shareholding spread of EPIC is only 32.7%, since unit trust funds (there are quite a few funds from Public and Great Eastern invested in EPIC) will most likely not be allowed to hold shares in unlisted companies they will be forced to sell. The 25% barrier will be quickly breached, the 10% will most likely follow. Pity, since EPIC is a clearly better than average company:


  1. What about Ranhill? Why wasn't this Epic treatment applies to them???? It should be consistent when one of the director bought share before privatization?

  2. Ze moolah has blogged about Ranhill:


  3. Just read the article, thanks....

    If the majority shareholder does not intend to keep the listing status, what can the minority shareholder react, I don't think they have 25% shareholding eventually....

  4. I am not a legal council, but as far as I know:

    Majority 90+%: immediate delisting. Don't worry, Minority Invetsors still get a chance to sell at the same price, offer is extended. If again Minority don't want, than Mandatory Acquisition, if necessary through High Court, again, still at same price.

    Majority less than 75%: company stays listed, if Majority really want to de-list, let them come with a better offer.

    Majority between 75% and 90%: if the company stays listed is at the discretion of Bursa Malaysia. Company should comply with shareholdings spread, but if they don't want to do that for a longer period of time, company might be delisted.

    If you don't urgently need the money, you can always wait. The company might come with a better offer. And if not, and delisted, you still get a chance to get out, they don't want to go to the high court, troublesome and costs money.

    If any legal expert knows the above is wrong, please comment.

    My problem with the above: Minority Shareholders hardly stand a chance. Sc & BM know this, but do nothing about it.

    There is also a huge information bias, Majority shareholders will force out Minority Shareholders when they know that business is good, and vice versa. That is why you need a good regulator who comes up for the small shareholders. Unfortunately, that is not the case in Malaysia.

  5. The Edge has missed a very important statement " A cash compensation scheme to the shareholders of EPIC as at 10 December 2010....... " sigh!

  6. Hi, I think that is what they meant with:

    "Apart from the GO to existing shareholders, LTAW plan to compensate those who had sold their shares at below RM 3.10 between Dec 10, 2010 and Aug 23, 2011. The cash payment will be the difference between RM 3.10 and the price at which investors sold their shares in this period."

    Easier said than done by the way, some people might have left the country, some might have passed away for other people to claim, some might have sold, bought back and sold again.

    But, I do like the gesture, I think a first ever.

  7. I remember the cash compensation scheme (CCS) is only made available to those shareholders appeared in the record book on 10 December 2010. Those bought the share after this date would not entitle the CCS. Your clarification please. Meanwhile, i think it's not the first case, the other is Takaso Resources Berhad. H2O

  8. Thanks, you are right, I didn't know that case. Takaso Resources Bhd did indeed have to make a CCS in 2009 for shareholders in 2002 (!) after they lost the court case.

    If two people bought EPIC on Dec 11 2010, one sold his shares at Aug 23 2011, the other wanted to sell one day later but the shares were suspended and he would receive the GO notice. Should they be treated differently?

    Dec 10 2010 was a special day, the share sale turned unconditional, in other words the GO was on (although LTAW didn't know it or didn't want to admit it). But in August 2011 nothing special happened, probably the SC pressured LTAW to make the GO and LTAW finally gave in under the conditions mentioned.

    I am not an legal expert but it sounds like an interesting case.

  9. Hi M.A. Wind,
    Thanks for the reply! Let's consider this interesting scenario of EPIC:-

    Let's say those people who bought the shares knew and well-awared of such MGO, they should stick to the share until the MGO happen rather than sold their shares half way. Eventually, they will get the offer price of RM3.10.

    If those people who bought the shares without knowing the MGO, and sold their shares before Aug 23, they are, in fact, not aware of that "additional" profit. Why should they be entitled the compensation?

    I guess that's the reason SC only pursue the matter for those shareholders registered on and before Dec 10, 2010. It would be quite a mess to do cross-checking for such scheme especially those buy and sell for trading purpose in EPIC. H2O

  10. Yes, that is probably why they only will do the CCS for those who owned the stock on Dec 10 2010 and sold, and the MGO of course for those who own the stock now.