Sime Darby's E&O bid poses policy dilemma (3)

In The Edge of September 12, 2011 are a few interviews with the key players of the Sime Darby / E&O deal: Deputy Managing Director Eric Chan, Tan Sri Wan Azmi Wan Hamzah (major shareholder) and Datuk Mohd Bakke Salleh, CEO of Sime Darby. What is remarkable is that nobody seemed to see anything wrong with the fact that certain shareholders would receive a large premium to the price on the market, while others (the Minority Shareholders) would not be able to get this same price. The interviewed persons hardly talked at all about Minority Investors nor showed sympathy for their plight.

I am rather surprised by this. Being involved in angel investing (investing in early stage startup companies) my company routinely insists on a "Tag Along" clause in the Shareholders Agreement. This gives us the right to sell our shares for the same price when Founders or large shareholders sell their shares (we are ourselves always Minority Shareholders). We explain this clause and the reasoning behind it to the Founders of the companies we invest in, who never had any problem with it, in the contrary.

The Minority Shareholders Watchdog Group made a good statement about this corporate exercise in their Newsletter of 7 September 2011, which can be downloaded here:

http://www.mswg.org.my/web/newsletter.php

Sime Darby is caught in this controversy. Datuk Bakke, the CEO, said in his interview with The Edge: “To make a General Offer without the benefit of due diligence is not a wise thing to do”. But is it wise to make an acquisition of RM 766 million without due diligence? If buying 30% of E&O at the given price is considered a good deal to Sime Darby, then buying the full 100% for the same price per share should also be good in my opinion.

The Securities Commission (SC) is also caught in the controversy. On the website of Rocky's Bru, a document alleged to be an internal memo from the Chairman of the Securities Commission can be found:


http://www.rockybru.com.my/2011/09/zarinah-anwars-memo-to-sc-staff.html.


If this alleged memo is indeed written (it has not been denied at this moment), then that has not made things better in my opinion, with the investigation still ongoing.


The SC finds itself in an akward situation, which was bound to happen, and will happen again if nothing changes.