Wednesday 12 October 2011

No mandatory GO for E&O

Sime Darby does not need to make a GO for E&O.

Some shareholders will receive RM 2.30 for their shares, others can sell them in the market for RM 1.30. Is that fair?

"In finance, shareholders' equity (or stockholders' equity, shareholders' funds, shareholders' capital employed) is ownership equity spread out among shareholders whose class of share may have special rights attached to it. If all shareholders are in one and the same class, they share equally in ownership equity from all perspectives."

What happened reminds me of "Animal Farm" of George Orwell: "All animals are equal, but some are more equal than others".

One more aspect is never revealed. If I were a major shareholder, and somebody would come to me and would offer to buy almost all my shares, my first question would be "Why not all shares?". The answer is of course that if all shares were bought of all three parties, Sime Darby would have to make a GO. 

"Tham had disposed of a 12.2% stake, which left him holding 5.15%, Wan Azmi pared his stake to 2.9% after disposing 9.1% while GK Goh Holdings Ltd sold 9.5%, cutting its stake to 3.5%." 

Or would really none have asked this question? 

From The Edge:

KUALA LUMPUR: Sime Darby Bhd will not be required to extend a mandatory general offer (MGO) for property developer Eastern & Oriental Bhd (E&O) following the plantation conglomerate’s acquisition of a 30% stake in the latter in late August.

The Securities Commission (SC), in a letter to the conglomerate dated yesterday, said it found no collusion between Sime Darby and E&O’s managing director Datuk Terry Tham Ka Hon with regard to the deal.

“It is the SC’s findings that Sime Darby and Datuk Terry Tham Ka Hon are not parties acting in concert, and as such, a mandatory offer obligation would not arise,” said Sime Darby in a statement to the local bourse.

The SC also issued a statement, saying: “In the course of the review, the parties involved in the transaction were interviewed and relevant documents procured. The review included an assessment of possible concert party relations between and amongst the parties involved.”

“Having analysed all the evidence gathered, it is the SC’s finding that the acquisition of the 30% equity interest in E&O by Sime Darby had not given rise to a mandatory offer obligation under the Malaysian Code on Takeovers and Mergers 2010.”

E&O had been in the spotlight since Sept 9 when Sime Darby bought RM766 million worth of E&O shares from three vendors — Tham, Tan Sri Wan Azmi Hamzah and GK Goh Holdings of Singapore.

A major surprise was the pricing of the shares, at RM2.30 each, a huge 59% premium to E&O’s share price at the time the deal was announced.
Shareholders at the E&O AGM on Sept 30 had rejected ECM Libra's attempt to nominate two directors to the board.
Many had suggested that Sime Darby should be forced to undertake an MGO for the remaining E&O shares it did not own as together with the three shareholders that sold the 30% block, they held around a 41% stake.

Tham had disposed of a 12.2% stake, which left him holding 5.15%, Wan Azmi pared his stake to 2.9% after disposing 9.1% while GK Goh Holdings Ltd sold 9.5%, cutting its stake to 3.5%.

Sime Darby and the three individuals have vehemently denied acting in concert. However, it did nothing to silence the critics, finally prompting the SC to launch an investigation.

Among the shareholders of E&O that would have been disappointed by the SC’s decision would be ECM Libra Financial Group Bhd.

The investment banking group had acquired a 5.12% stake in E&O in May this year, and had continued to raise its shareholding in the property developer even after the Sime Darby purchase was announced.

ECM Libra has since built its stake to 6.62% after the recent acquisition of two million shares on Sept 29-30, making it the second largest shareholder in E&O after Sime Darby.

It also recently attempted to nominate two directors to the board of E&O, but this was rejected by the latter’s shareholders on Sept 30.

On the other hand, the SC’s decision would be a relief for Sime Darby, whose share price fell sharply after the deal and in the ensuing market selloff.

Investors had feared that an MGO will turn out to be a costly exercise for Sime Darby.

The acquisition of the remaining 70% of E&O at RM2.30 per share would have cost Sime Darby an additional RM1.8 billion, on top of the RM766 million earlier paid for the 30% block.

It is uncertain however, as to whether the SC’s decision will put an end to market talk over the controversial deal.

In its statement, Sime Darby also said, “The SC’s finding is without prejudice to a review of the decision should new facts arise in relation to the matter and the commission’s rights to take appropriate action provided under the securities laws as a consequence of such a review.”

Both Sime Darby and E&O had their counters suspended for the morning session before resuming trade in the afternoon.

Sime Darby gained 10 sen to close at RM8.50 on volume of 6.82 million shares while E&O closed unchanged at RM1.36 with 6.05 million shares traded.

E&O’s shares are trading near their one-month lows, while Sime Darby’s shares have rebounded 11% from their one-month lows, reflecting expectations that an MGO was highly unlikely.

This article appeared in The Edge Financial Daily, Ocotber 12, 2011.


  1. Whilst this is disappointing for the minority interest, I guess it's to be expected. Sime would have checked with their advisers/lawyers to avoid MGO this transaction.

    IMHO, the more important question is how is Sime going to add value to E&O as a large shareholder. If they can improve its' profitability over time, this would be just as good/fair to the minority shareholders.

  2. Thanks for your comment.

    I agree it was more or less expected, but I find it a rather grey area. If there were say just 2 shareholders, together exactly 30%, then SD could just buy them all over, no problem.

    But with 3 shareholders owning 40+% and then exactly buying 30% while leaving with them 10+%, I find that a rather artificial construction. The explanation given so far did not really strike me as satisfactory.

    If I would have been an E&O minority shareholder I would be pretty angry.

  3. In SC press statement "In the course of the review, parties involved in the transaction were interviewed and relevant documents procured. The review included an assessment of possible concert party relationships between and amongst the parties involved"...

    If Sime has gained control in E&O, whether the parties are acting in concert becomes irrelevant.

    Why SC looked at PAC instead of whether SIME has gained control of E&O?

  4. I tend to agree with you, Parties Acting in Concert is a bit vague and difficult to prove. But control, yes, it seems to me like they have control, the 4 parties together. For Sime not to take up a Director role, that sounded suspicious to me, like saying "no, we don't have control, we didn't invest for the control".

    After the SC decision, a few months down the road, they can pick up their directorship, everybody already has forgotten about what had happened.

    Every party with 30% shareholding will normally take up a Director's role (at least one), the fact that they didn't ask for one doesn't feel right to me.

  5. Is the SC so naive to believe that SIME was willing to pay such hefty premium of almost 60% not for the control of the company?

    It is not good for the market

  6. Another issue is: why didn't they slowly buy from the market? They could have done so until 4.99% at a much lower price, only breaching the 5% they have to announce.

  7. This is good for the Malaysia Stock Market I guess

  8. Thanks, I love it! Will post about it.

  9. I love this piece of news too!

    Another case where Singapore media reported news about Malaysian company ahead of Malaysia media.

  10. I hope he wins!

    Posted already about this court case.

    Yes, Singapore is taking the lead, Malaysia only dares to follow. The case of Mayban and KAF, there Malaysian papers didn't dare to follow, the others they did.

    I have both Singapore Business Times and Singapore Straits Times, so will follow up on all I read here.