Sime Darby: what happened after its merger? (2)

Long article in The Star: Sizing up Sime Darby’s demerger

But what is missing?

First of all one simple number, how much will this demerger actually cost? Surely this number should have been disclosed in a transparent manner.

The previous exercise in which Sime Darby was merged with Golden Hope and Kumpulan Guthrie was rumoured to have cost RM 500 Million, that is a lot of money. Most likely this demerger will cost a similar amount of money. This cost is certain to happen, possible benefits are just projections, there is a large difference between a certain cost and possible future benefits.

Secondly, were the expectations of that previous merger met? According to this link:

Were those annual benefits of RM 400 - 475 Million ever realized? I strongly doubt it, Sime Darby's results have been disappointing since the merger. But would it not be better to analyze first what went wrong the last decade, and communicate these findings in a transparent way to the shareholders?

Thirdly, if this demerger really makes so much sense, why was it not done ten years earlier, when the merger took place? It could have saved hundreds of millions of fees and costs with the company having the possible benefits over the last decade.

Sime Darby: what happened after its merger?

Sime Darby announced its long expected demerger, and analysts prepared their reports (here, here and here).

I am sure we will be overwhelmed in the next months by sleak PowerPoint presentations and the like, full with jargon like "unlocking of value", "strategic repositioning", "win-win situations", "maximizing shareholders value", "refocussing exercise" etc.

But ten years ago Sime Darby also went through a large restructuring (the merger with Guthrie and Golden Hope), also with sleak PowerPoint presentations, and the results of that exercise are definitely underwhelming.

Sime Darby's share price has performed very poorly, and is even below the level of 2007:

Most likely that can be explained by looking at the revenue and especially profit numbers over the last five year:

That exercise in 2007 must have cost a few hundred million RM, that is quite a nice and tidy amount of money that could have been spend on something else, possibly more useful.

Before Sime Darby jumps into the next restructure (which again will cost quite a bit of money, I assume), can we please get a honest, hard look at what was promised in 2007, and what actually was achieved in the next ten years? For instance, what happened to the promised synergy and economy of scale? Which party actually benefitted of that merger? Was it may be only the advisors and the bankers who came out ahead, charging juicy fees?

Will PNB property merger add value?

Article in the Business Times: "PNB merger plan to create global giant":


Permodalan Nasional Bhd’s (PNB) plan to merge three of its biggest property companies, including SP Setia Bhd, is to create a giant that can compete globally.

PNB, the country’s biggest asset manager, is reportedly studying a proposal to consolidate SP Setia Bhd, Island & Peninsular (I&P) Sdn Bhd and Sime Darby Properties Bhd.

Its president and group chief executive Tan Sri Hamad Kama Piah Che Othman said recently the company is also looking at the feasibility of investing overseas.

He said all the research and preparations for an overseas venture have been completed.

“By consolidating the three companies, there will be more streamlining of businesses and operations. Except for I&P, the other two have international presence.

As a single giant, it would be easier to buy more assets overseas, undertake major developments and expand earnings,” an industry source told Business Times.


That last argument sounds reasonable, but will it work in practice?

There is a large counterforce at work, one that is often neglected. That counterforce has to do with bureaucracy, adding even more layers between the people who make the decisions and the people who do the actual work. Luckily, if I may add, because otherwise the world would be ruled by the big corporates.

There is an earlier example of PNB companies merger together, that time in the plantation industry. Kinibiz wrote a series of articles about that merger, for instance in "Sime Darby loses value since 2006 merger" it is stated:


Last Friday, on April 4, Sime Darby Bhd closed at RM9.26, putting its market capitalisation at RM56.1 billion.

That is 5.7% lower from the RM59.5 billion value when the conglomerate re-entered the stock market on Nov 30, 2007 after the 2006 Synergy Drive merger. In the meantime the FBM-KLCI, the barometer of stock market performance among large companies has steadily grown over the years.

On Nov 30, 2007, the FBM-KLCI or just KLCI as it was then closed at 1,396.98 points. Last Friday the benchmark index closed at 1,856.61 points. This means in a bit more than six years, the index has grown by a third.

Perhaps a more fitting comparison would be a plantations company making up the 30-company benchmark index, say Kuala Lumpur Kepong Berhad (KLK), given that roughly half of Sime Darby’s earnings come from its plantation division. Last Friday, KLK closed the trading session at RM23.62, putting its market capitalisation at RM25.16 billion.

That represents an increase of 49.5% since Nov 30, 2007 when KLK’s market capitalisation was at RM16.83 billion — a growth of over RM8 billion in a six-year period.


KiniBiz even makes a case that breaking up Sime Darby would create extra value: "RM20 billion extra value by breaking up".

Next to that, both the handling of the General Offer by PNB for SP Setia and the subsequent events were not exactly impressive either, definitely not from a CG point of view nor from the point of view of creating value for SP Setia's minority investors, in the contrary.

Triumphal and Perak Corp: unfair privatisations?

Article in The Star: "Will minority shareholders triumph in seeking higher value?".


"It has been reported that a group of individual shareholders who own a combined 4.4% stake in Perak Corp have deemed the RM3.90 per share offer by Perak Corp as “ too low”. This is taking into account the fact that the company’s underlying assets, which have not been revalued in a long time, have appreciated. Perak Corp is the owner of Lumut Port via listed Integrax Bhd – an asset that has huge income-generating potential. Its two major property assets, meanwhile, are the 256.8ha in Bandar Meru Raya and 186ha in Behrang.

The minorities estimate that Perak Corp’s revalued net asset value (NAV) is more than RM12. The company’s NAV per share as at Sept 30, 2013 was RM5.03, while it is sitting on RM180mil in cash.

In Triumphal’s case, the offer of RM1 is at a 65% discount to the company’s NAV per share of RM2.84 as at Sept 30 last year. It has been pointed out by analysts that the company has strong asset backing and was in a net cash position of RM17.81mil as at Sept 30 last year."


Delisting exercises are often unfair in Malaysia, done at a steep discount to its NAV (while sometimes the NAV is even conservatively valued). There is a rather awkward "reward" for controlling shareholders, if they don't extract clear value from a listed company then the share price will go down and the controlling parties are able to privatize the company for a low price. Minority investors are often unable to fight these exercises, being a dispersed group.

However, in this case:


"Two major local institutions now have the opportunity to challenge recent privatisation deals involving Bursa Malaysia-listed firms which are seemingly unfair to minority shareholders. The institutions are Permodalan Nasional Bhd (PNB), which owns 12.18% in Triumphal Associates Bhd, and Sime Darby Property Bhd, which controls a 6.13% block in Perak Corp Bhd."


With the current attention for more shareholder activism by institutional investors, these cases come quite timely. Will PNB and Sime Darby put up a fight?

MSWG holds an investor education forum on January 23, 2014 at 10.30AM about these two cases, but also about Kian Joo Can Factory and BERNAS. Interested parties might want to contact MSWG about this event.

The Malaysian Insider retracts untrue report on Securities Commission

Article on The Malaysian Insider:

"The Malaysian Insider retracts a report on the SC over the Sime-E&O case

With regards to The Malaysian Insider's report on August 10, 2012 headlined "SC to order Sime general offer for E&O, say sources", The Malaysian Insider would like to retract the said report on the Securities Commission (SC) as it is untrue.

The statement in the said article that was attributed to the SC was untrue and was published without verification with the SC. The report has now been withdrawn as it is untrue and false.

We apologise to the Securities Commission for the said untrue report. - October 24, 2013."


I wrote about this article:

• SC to order Sime general offer for E&O? 
• The E&O price surge – and collapse.

"the share price of E&O is up RM 0.42 in very heavy volume, the warrant is up a whopping 3,199%, also in very heavy volume.

Looks like the authorities have another possible case of insider trading to deal with since there has been no official announcement."


Some persons must have made a lot of money trading E&O on that fateful day, August 10, 2012, while other must have lost their shirt. I hope the authorities are looking into that.

I like to re-iterate the words of P. Gunasegaram:


Nothing less than the integrity of our markets is at stake here. For too long, market manipulation and insider trading have been excused on the grounds that it makes the market, that it provides excitement and that it provides opportunities to make money for both traders and brokers.

But really, that's not the purpose of the market. The purpose is to provide a place where investors and others can seek a fair value for the assets they buy and sell through a fair, transparent and straightforward process that provides equal information and opportunity to all.

The economic aim for all that is to provide investors with a place to raise capital efficiently so that business can flourish.

It is lamentable that this basic aim of capital markets seems to be lost and it has become a place for wheelers, dealers and plain crooks to make money in less than honourable, and even illegal, ways.

What a shame! And will it ever change?

SC's bid to disqualify judge rejected

According to this article on the website of The Edge Malaysia, the Securities Commission lost its bid to disqualify High Court Judge Abang Iskandar Abang Hashim to recuse himself from hearing a suit challenging Sime Darby's controversial purchase of a 30% interest in E&O. Hopefully the suit by minority shareholder Michael Chow Keat Thye will continue soon.

This is not the first time that Sime Darby has run into problems regarding a share purchase. Blast from the Past, from the website from the Securities Commission: Sime Darby and its Board of Directors being reprimanded in 1998 regarding the purchase of shares of Sime Bank. Was the reprimand a strong enough punishment, and why were the Directors involved not individually named? Some snippets:


The Securities Commission (SC) today reprimands Sime Darby Berhad (Sime Darby) and its Board of Directors responsible for the take-over of Sime Bank Berhad (Sime Bank)


In the case of Sime Darby and its Board of Directors responsible for the take-over of Sime Bank, the SC had decided to issue them a public reprimand for their indifferent attitude in handling the take-over transaction of Sime Bank resulting in the breach of Rule 34.1 (a) of the Code after taking into consideration their subsequent attempts to fulfill their obligation, which unfortunately could not be discharged as a consequence of the drastic change in the financial position of Sime Bank which resulted in their having to divest their entire shareholdings in Sime Bank.


Chronology of events in Sime Darby's case

On 11 November 1995, Sime Darby entered into a conditional agreement with Datuk Keramat Holdings Berhad (DKH) and UMBC Holdings Sdn Bhd, a wholly-owned subsidiary of DKH, to acquire 201,168,890 Sime Bank shares, representing 60.35% equity interest in Sime Bank, for a cash consideration of RM1,300,000,000 or approximately RM6.46 per share. Following this acquisition, Sime Darby was obliged to extend a MGO on the remaining 132,164,322 shares in Sime Bank under Rule 34.1(a) of the Code.

The SC had on 16 February 1996 given its confirmation to Sime Darby that they had to undertake the MGO for the remaining shares in Sime Bank. The acquisition of Sime Bank by Sime Darby Group was completed on 22 April 1996, whereby the acquisition was made through, Sime Darby's wholly-owned subsidiary, Sime Darby Financial Services Holdings Sdn Bhd (SDFS). Sime Darby did not carry out the MGO due to the limitation on its interest in Sime Bank permitted by Bank Negara Malaysia (BNM) then.

Subsequently, on 12 March 1997, Sime Bank completed a rights issue of 166,666,606 Sime Bank shares at an issue price of RM6.50 per share on the basis of one new Sime Bank share for every two existing Sime Bank shares.

The SC had reminded Amanah Merchant Bank Berhad (Amanah), Sime Darby's adviser, of Sime Darby's outstanding obligation and the need to resolve the matter as soon as possible. Subsequently, Amanah, on behalf of SDFS, informed SC that SDFS had on 17 October 1997 obtained BNM approval and proposed to extend an unconditional mandatory general offer for the remaining shares in Sime Bank not already owned by SDFS. Between October 1997 and January 1998, several applications were made by Amanah, on behalf of Sime Darby, for revisions in the terms and conditions of the MGO.

Change in ownership

Towards the end of February 1998, Sime Darby indicated that it might not be possible for them to pursue the MGO as a change of ownership in Sime Bank was imminent. On 10 March 1998, Rashid Hussain Berhad (RHB), Sime Darby and KUB Malaysia Berhad (KUB) released a joint statement in respect of the signing of a conditional sale and purchase agreement for the acquisition by RHB Group of Sime Bank for the purpose of a merger with RHB Bank Berhad (RHB Bank). Sime Darby through its wholly owned subsidiary, SDFS, decided to dispose of its entire 60.35% equity interest  comprising 301,753,335 shares of RM1.00 in Sime Bank while KUB would dispose of 150,043,120 shares representing 30.03% equity interest in Sime Bank to RHB Bank Berhad (RHB Bank) for a total purchase consideration of RM770 million or approximately RM1.70 per share.

With the new development involving the changes in ownership in Sime Bank, the SC had, on 31 March 1998, written to Amanah to inform them of Sime Darby's outstanding obligation on the MGO and required them to revert on their plan to address the obligation. On 13 April 1998, Amanah replied and informed the SC that BNM via its letter dated 9 April 1998 had withdrawn its earlier approval given via a letter dated 17 October 1997 for SDFS to undertake a MGO and that Sime Darby was in no position to undertake the general offer.

SC issues show cause letter

The SC views seriously the failure of Sime Darby to carry out the MGO and had on the 12 May 1998 issued a show-cause letter to the Board of Directors of Sime Darby seeking explanations on why appropriate action should not be taken against them for failure to undertake a general offer for the remaining voting rights in Sime Bank. Sime Darby explained that the market downturn and the financial problems at Sime Bank and Sime Securities Sdn Bhd had prevented them from discharging their MGO obligation.

"Asean: Virtue and Vice"

From CLSA's highly influential CG Watch 2012, the executive summary for Singapore, Malaysia, Thailand, Indonesia and the Philippines is given on pages 11 & 12:

Singapore has the highest CG score of markets we cover ex-Australia
Asean spans markets that in our rankings are the highest as well as those that come at the bottom of CLSA and ACGA’s rankings. Singapore has, on average, the highest score for governance among its corporates. As this report goes to print, there is a battle for corporate control for Asia Pacific Breweries (APB), which owns leading beer brands in the region (Tiger, Anchor, Bintang, etc). The conglomerate F&N looks set to dispose its majority stake in APB to Heineken, with which it has had a partnership arrangement that was disturbed when Thai Beverages made a bid for both a stake in FNN and control of APB. The likely outcome is that F&N disposes of its stake in APB at a premium and might disentangle its current structure that puts brewing and softdrinks together with a large property division. That a battle for corporate control in one of the largest conglomerates is leading to realisation of shareholder value with commercial logic prevailing is a rarity in the region.

But S-chips are an embarrassment
However, Singapore’s embarrassment is the so-called S-chips, mainland companies that have listed in its market. CG standards are shoddy, a number of firms have flouted the listing rules and directors have absconded to China when the exchange pursues them. The case for Chinese companies listing in Singapore has never been clear and investors in these stocks certainly need to weigh seriously the risks. This segment of the market, however, is likely to diminish in significance over time.

Sime Darby takes a hit again
Across the causeway, the largest of Malaysian conglomerates once again disappointed the market. In the Asian crisis, Sime Darby nearly blew up for its poorly managed foray into banking and stockbroking. Over the recent crisis, its balance sheet is much stronger and loses less significant but it took a hit again, this time for cost overruns at Bakun as well as the Middle East power projects, a business where it has little expertise.

Unfavourable optics in Sime’s E&O takeover
An independent director at Sime Darby has recently been charged with insider trading. More embarrassing for the governance perception for the market was Sime’s acquisition of a controlling stake in the property company, E&O. This had been preceded by the chairman of E&O buying shares in the company, before Sime Darby announced it was taking over control at a 60% premium. On the basis that the acquisition of the stake was a private transaction between Sime and the previous significant shareholders (which did not include the chairman), and that the matter had not been discussed by the board of E&O, no charges of insider trading was brought to bear. But unfortunately for the optics of the matter, the E&O chairman was the husband of the then chairperson of the Securities Commission (SC). She has since stepped down when her contract was not renewed earlier this year.

Successful enforcement required to improve perceptions
The now retired SC chairman had been brought to the commission fairly recently in 2006 from outside the agency. The current chairman has been promoted from within and has been a regulator for over 20 years (neither does he have the disadvantage of having a spouse who is a corporate figure). CG issues are nevertheless likely to continue to crop up but the efforts of the SC to take to task directors for insider trading is a positive. The country, though, needs a period without governance accidents at its larger companies and successful enforcement against transgressors to improve the perception of investors on the market.

Little impact from new government in Thailand
Thailand has a new government in place now for slightly more than a year. This has not had much of an impact on the governance outlook for corporates. Related-party transactions remain an issue with certain groups, cropping up again with CP Foods. But as companies get larger we notice improvement in transparency. The stock exchange continues to push for high standards, for instance on voting by poll, which is not mandatory but most companies have been persuaded to adopt this for extraordinary and annual general meetings, a practice that is still relatively uncommon in the region.

Regulatory issues in Indonesia
Indonesian firms have had to deal with regulatory uncertainty with regard to ownership limits on the banks and export restrictions on the mining sector. These impact their ability to maximise shareholder value, which is one of the issues in our CG scoring. Indonesian companies are also the slowest to release full-year results; given the 90-day deadline for releasing full-year numbers, none report within two months which is becoming the norm elsewhere.

Shadow play in the London market
Over in the London market, a shadow play for control of a FTSE constituent that had recently been created to take an interest in an Indonesian mining asset was illuminating. It reveals firstly there is still risk of change in shareholding structure for groups where major shareholders are highly geared. Yet, influential groups will often be able to retain effective control. Other shareholders and investors should expect to go along with the intentions of the effective controlling shareholder.

No real CG change yet in the Philippines
In the Philippines, President Aquino has been in power since 2010 and sets a positive backdrop for clean governance nationally. At the corporate level, however, there is little evidence of much change as yet. Companies continue to issue new equity when the purposes are unclear, eg, Ayala Corp, or
sometimes surprising the market with the size, eg, Banco de Oro. Inter-group transaction of assets within the First Philippine Holdings listed companies raised questions over pricing.

The E&O price surge – and collapse

Good article in The Star by P. Gunasegaram, one of my favorite journalists, about the recent boom and bust in E&O's share price:


Nothing less than the integrity of our markets is at stake here. For too long, market manipulation and insider trading have been excused on the grounds that it makes the market, that it provides excitement and that it provides opportunities to make money for both traders and brokers.

But really, that's not the purpose of the market. The purpose is to provide a place where investors and others can seek a fair value for the assets they buy and sell through a fair, transparent and straightforward process that provides equal information and opportunity to all.

The economic aim for all that is to provide investors with a place to raise capital efficiently so that business can flourish.

It is lamentable that this basic aim of capital markets seems to be lost and it has become a place for wheelers, dealers and plain crooks to make money in less than honourable, and even illegal, ways.
What a shame! And will it ever change?


And I very much agree with that.

I would like to add two items to the discussion:

[1] The writer thinks that it is a quite clear case (based on previous ones) that Sime Darby does not need to make a mandatory general offer for the remaining shares. I think each case is different, and especially this one is intriguing. Two peculiar facts of this deal are that Sime Darby bought its shares at a high premium (60%), and that the sellers still have quite a few shares left. Together with each of the sellers, Sime Darby easily breaches the 33% rule.

[2] The writer does discuss the huge volume in E&O shares traded after the article on The Malaysian Insider was published, but there was also a huge volume in E&O call warrants. I have never liked these call warrants (they don't add any value to the economy), but the more so since it is unclear who the sellers are, retail investors who bought the warrants before, or bankers who still had inventory of them. I definetely hope that the trade in these warrants is also investigated by the authorities.

The E&O/Sime Darby saga will continue to hog the limelight for quite some time.

SC to order Sime general offer for E&O?

Interesting article on the Malaysian Insider website suggesting that Sime Darby has to make a general offer for E&O shares after all.

The crux of the matter: "A general offer can also be triggered if a new party buys less than 33 per cent but secures management control of the target company".

However, according to an article on the website of The Star

Sime Darby Bhd does not have to make a general offer for the remaining shares in Eastern and Oriental Holdings (E&O) after it acquired a 30% stake, according to the Securities Commission.

The SC said in a statement on Friday that its position on the GO requirement in the Sime Darby-E&O acquisition remained unchanged as per the statement issued on Oct 11, last year.

"The decision is now subject to judicial review which is pending in court," the SC said.

Securities of E&O surged in active trade late Friday on a news portal report that the SC would now order Sime Darby to make a GO for the remaining E&O shares.

Above is today's chart, the share price of E&O is up RM 0.42 in very heavy volume, the warrant is up a whopping 3,199%, also in very heavy volume.

Looks like the authorities have another possible case of insider trading to deal with since there has been no official announcement.


Article from Malaysian Insider:

In a volte face (Wiki: a total change of position, as in policy or opinion; an about-face), the Securities Commission (SC) will now order Sime Darby Bhd to make a general offer for Eastern & Oriental Bhd (E&O) shares after buying a 30-per cent stake last year, say government sources.

The Malaysian Insider understands the decision was made after a review by the leadership under new SC chairman Datuk Ranjit Ajit Singh.

“The SC has reviewed the matter and decided to overturn the earlier decision made when Tan Sri Zarinah Anwar was the chairman,” a government source told The Malaysian Insider.

Ranjit, who was the SC managing director, took over as chairman after Zarinah ended her term last March 31.

Another source confirmed the review and said the decision will be made public soon.
Sime Darby purchased its controlling 30 per cent interest in the property developer from three major shareholders — managing director Datuk Terry Tham, Singapore’s GK Goh Holdings and a group of investors led by businessman Tan Sri Wan Azmi Wan Hamzah — at the end of August last year in a deal that valued E&O shares at RM2.30 a piece.

The purchase price represented a 60 per cent premium over the value of the shares in the company on the open market when the deal was announced.

The RM776 million deal triggered unease over the widely-perceived coddling by the agency of large state-controlled companies at the expense of minority shareholders when exercising its authority on corporate takeovers.

The SC ruled six weeks after Sime Darby’s purchase of the three blocks that the plantation-based conglomerate need not make a general offer, prompting E&O minority shareholder Michael Chow to sue the SC for failing to compel Sime Darby to make a general offer for the rest of the shares.

The legal suit has renewed debate over the SC’s handling of alleged irregular trading activities and had put pressure on Zarinah, whose husband — the E&O chairman — had raised his personal stock holdings in the company just weeks before Sime Darby announced the acquisition.

The SC has also filed an application to recuse the judge hearing the suit as he used to be with the regulator. But the judge dismissed the application, only for the SC to file an appeal with the Court of Appeal, which heard the case yesterday.

Singapore’s Straits Times reported last January that a SC task force found that Sime Darby was obliged to make a general offer for E&O shares after acquiring a 30 per but was superseded by the regulator’s top ruling authority.

The daily reported that the task force was of the view that a general offer obligation had been triggered as a new “concert party” was created between Sime Darby and Tham, who jointly controlled more than 33 per cent in the property concern after the deal.

Malaysia’s takeover rules stipulate that any party that acquires more than a 33 per cent interest in a publicly-listed entity must carry out a general offer for the remaining shares.

A general offer can also be triggered if a new party buys less than 33 per cent but secures management control of the target company.

But the SC’s final ruling three-member committee adjudged “in a majority decision” that there was no general offer obligation as Sime Darby and Tham were not acting in concert, according to an affidavit by the agency’s second-most senior commissioner Datuk Francis Tan, which was sighted by the Singapore daily.

The committee also accepted the task force’s recommendation that the three groups that sold the blocks of E&O shares to Sime Darby did not collectively control the company and that the disposal did not trigger a general offer.

"Secret dealings" at the Securities Commission?

I am really interested what the "secret dealings" of the Securities Commission are, hopefully they will be revealed further. Article from Malaysian Insider about the interesting court case that a minority investor of E&O has initiated against the Securities Commission. Court cases are always good in Malaysia, lots of information is revealed.

"High Court judge Abang Iskandar Abang Hashim should have disclosed he previously worked at the Securities Commission (SC) before hearing a suit against it by an E&O Bhd shareholder, the regulator’s lawyers argued today.
The lawyers contend he would know of “secret dealings” when hearing asuit filed by Michael Chow Keat Thye against the SC for failing to compel conglomerate Sime Darby Bhd to buy remaining shares after it bought a 30 per cent stake in the property developer for RM776 million."

Twist in E&O takeover saga

(updated version)


From The Straits Times (Singapore), January 30, 2012, written by Leslie Lopez. A long article that is only available for subscribers, some snippets:

• In affidavits filled in the High court, The Securities Commission stated that Justice Tuan Abang Iskandar Abang Hashim was previously employed by the agency and that "in the circumstances, there is a real danger of bias prevalent in so far as the present dispute is concerned"
• The yet-to-be-published court filings made available to The Straits Times represent the first responses by the Securities Commission to a closely followed suit filed in December by a minority shareholder of E&O.
• The waiver granted to Sime Darby has stoked criticism of the coddling of listed state-controlled entitities that dominate the Malaysian stock exchange at the expense of minority shareholders.
• The legal dispute is also offering a rare peek into the inner workings of the Securities Commission.
• According to the affidavit signed by Datuk Francis Tan Leh Kiah, the second-most senior commissioner in the Securities Commission, Sime Darby's purchase of the stake in E&O underwent two layers of scrutiny to determine whether a general offer should be carried out.
• A task force comprising senior officers from the agency's corporate finance and legal divisions examined the transaction and considered two key elements in the deal that could rise to a mandatory general offer obligation on Sime Darby. Mr. Tan said the task force ruled that the three groups which sold the blocks of E&O shares to Sime Darby did not collectively control the company and the disposal did not trigger a general offer.
• But on the second issue, the task force was of the view that a new "concert party" has been created between Sime Darby and E&O's managing director Terry Tham, who jointly controlled more than 33 per cent in the property concern after the deal. Thus, a general offer obligation had been triggered, Mr. Tan's affidavit noted.
• The recommendations were then forwarded to the agency's final ruling authority. Mr. Tan said that a three-member committee unanimously agreed with the recommendation from the task force that the three groups were not acting in concert and did not have control of the company.
• But the committee in "a majority decision" ruled that Sime Darby and Datuk Tham were not acting in concert and a general offer obligation did not arise.

Update: the Malaysian newspapers still haven't picked up the story, but The Malaysian Insider has:

"SC task force found Sime Darby triggered E&O general offer"

http://www.themalaysianinsider.com/business/article/sc-task-force-found-sime-darby-triggered-eo-general-offer/

Olympus scandal triggers Japan shareholder activism, how about Malaysia?

In Japan, finally, shareholder activism starts to wake up. Lawyers for Shareholders' Rights (LSR) is backing an individual Olympus shareholder whose stake is worth only around 2.8 million yen ($US36,000) but who - unlike the institutions - has stood up against the board.

In Malaysia, shareholder activism is also moribund:

• Authorities (Securities Commission and Bursa Malaysia) have to take a large part of the blame due to their inactivity and almost always siding with the majority shareholders
• Large institutions like PNB, EPF, etc. have also been very disappointing in defending minority shareholders rights, being very passive and not speaking up
• Investors therefore mostly vote with their feet 
• MSWG has toned down since they are being sued (they don't have whistleblower protection)

However, one minority investor of E&O, Mr. Michael Chow, is suing the Securities Commission over Sime Darby's waiver not to have to make a General Offer for all shares.

http://cgmalaysia.blogspot.com/2011/12/minority-shareholder-sues-sc.html

This court case will definitely draw a lot of attention, could this case be the spark to ignite the so much needed shareholder activism in Malaysia, similar to what is happening in Japan?


http://www.smh.com.au/business/world-business/olympus-scandal-triggers-japan-shareholder-activism-20120123-1qcsk.html

After British whistleblower Michael Woodford was sacked as CEO of Olympus and revealed the Japanese firm had covered up losses of $US1.7 billion, he mounted a campaign to get his job back.

His effort though went nowhere, with Japanese financial institutions preferring to stick with the remaining board and several disgraced directors, some of them being sued by Olympus itself.

Now a group of 26 activist lawyers is looking to change Japan's closed corporate society as the scandal rocks global confidence in the business governance standards of the world's third-largest economy.

Woodford, the first non-Japanese to lead the camera and medical equipment maker, was disgusted at the lack of response to his campaign for re-instatement.

Institutional shareholders "are the reason why these directors are still there, without their support they shouldn't be," he said. "Despite one of the biggest scandals in history (they) have not spoken one single word of criticism."

But shareholder activism is rare in Japan. Instead institutions tend to have cosy ties with board members and cross-shareholdings are commonplace, creating a network of interests that militates against rocking the boat - on Friday the Tokyo Stock Exchange said it would let the firm stay listed.

Lawyers for Shareholders' Rights (LSR) is backing an individual Olympus shareholder whose stake is worth only around 2.8 million yen ($US36,000) but who - unlike the institutions - has stood up against the board. The anonymous man from western Japan is suing the directors who sacked Woodford, demanding they pay Olympus 1.34 billion yen in compensation for the firm's costs.

Takuro Maekawa, one of LSR's leading members, said his team - who do not charge for such cases - want to change a culture which "has compromised corporate responsibility and compliance".

Olympus has admitted that it used over-priced acquisitions and consultancy fees to hide losses it had made on earlier investments dating back to the 1990s.

In one element of the scheme it paid a Cayman Islands financial adviser $US687 million when it bought British medical instruments company Gyrus for $US2 billion in 2008.

Legal action

Olympus itself has launched legal action against 19 top current and former executives, including six present board members, among them president Shuichi Takayama, after an independent panel found them responsible for the cover-up.

But Takayama has not been sacked in disgrace or resigned, instead saying in the past week he would step down only after an extraordinary general meeting in April.

"I want to fulfil my responsibility for the benefit of stakeholders until handing the company over to new directors," he said.

None of Olympus' major Japanese shareholders have publicly called for him to go.

Instead they have quietly reduced their stakes as the share price plunged, with the biggest shareholder Nippon Life Insurance only citing unspecified "risks" and "economic rationality" when it said in November it had sold almost two-fifths of its holding.

Maekawa condemned the institutions' silence as "extremely abnormal".

LSR is looking at joining Olympus' own case, he said, to ensure it is properly pursued and "to bring all of the scandal into the light of day".

The LSR lawyers first started mounting actions on such issues in the early 2000s.

They sued four executive directors of Hitachi Zosen, a leading machinery and infrastructure firm, demanding they reimburse the fines the company had been ordered to pay for bid-rigging, eventually settling for 205 million yen.

They have also taken action against the president of Daiichi Life Insurance, demanding he pay back the expenses he claimed for wining and dining a number of politicians.

But the Olympus case is by far their most internationally high-profile so far.

"Our objective is not necessarily to help short-term investors make money by demanding a company make profit in every quarter," Maekawa said. "Individual investors have long been left at a great disadvantage to institutional holders."

Michikazu Aoi, professor of global management at Meiji University, said the Olympus scandal could have long-term consequences for both the company and the country.

"The Olympus board may be thinking, since the company has the world's top-notch endoscope technology, that they can withstand the scandal, smoothly handing over the company to the next board, and that the share price will eventually recover," he said.

"But I don't think things will be so easy."

The spectacle would appear "bizarre" to foreign investors, but Japanese financiers had different priorities and standards, he said.

"Japanese businessmen try to smooth over issues slowly. They seem to believe it is the way not to hurt anyone's interests. But they don't necessarily think about the interests of shareholders."

AFP

SC seeks to recuse judge

An interesting twist in an interesting saga, the SC is seeking to recuse High Court judge Abang Iskandar Abang Hashim from hearing a suit by minority shareholder Michael Chow in E&O Bhd. In 2004 the judge was appointed Director of Enforcement Division of the SC, a job he held until 2009.

From The Malaysian Insider:

The Securities Commission (SC) is seeking to recuse High Court judge Abang Iskandar Abang Hashim from hearing a suit by a minority shareholder in E&O Bhd, which could delay proceedings against the regulator for failing to compel Sime Darby Bhd to buy remaining shares after it bought a 30 per cent stake in the property developer for RM776 million.

Ironically, minority shareholder Michael Chow Keat Thye’s lawyers are battling against the recusal although the trial judge used to be the SC’s enforcement director from May 2004 until he was elevated to the High Court in October 2009.

“Yes, we are fighting against the recusal. We are fine with Yang Arif Abang Iskandar hearing the case,” a lawyer for Chow told The Malaysian Insider, declining to be named as he was not authorised to speak to the media.

The recusal hearing is scheduled for March 14, the original date for the case after Chow obtained leave for his legal suit.

Sime Darby’s subsidiary, Sime Darby Nominees Sdn Bhd (SD Nominees), had applied to intervene in the judicial review on January 7, according to a filing in the Bursa Malaysia.


For more follow the link:
http://www.themalaysianinsider.com/malaysia/article/sc-seeks-to-recuse-judge-in-simes-eo-offer-waiver-suit/

Minority shareholder sues SC

The year is almost over, but a nice surprise:

"Minority shareholder sues SC over Sime’s E&O offer waiver".

I have blogged a few times about this issue before:

http://cgmalaysia.blogspot.com/search/label/Sime%20Darby

I never liked this deal from the start. I find it simply unfair why certain persons receive RM 2.30 per share and others only the market price (that time around RM 1.59 per share). A share is a share, there is simply no difference at all.

I also never liked the way the persons involved talked about this deal (in interviews in The Edge). They did not one time mention the rights of minority shareholders, as if they simply didn't exist. It came across as very arrogant.

I also didn't like how Sime Darby announced two directors for E&O on November 29, 2011, one month after the SC judged about Sime Darby not having to make a General Offer for all shares. They first want to show they don't have any control, but after the judgment they "silently slipped in two directors".

I also didn't like the logic behind the case, if RM 2.30 is such a good price for a share, why not make a General Offer for all shares? And if it is not a good price, why bother, why not just buy shares at the market for a much lower price?

Together with the remaining shares of the people involved in the deal Sime Darby has clearly control over the company. Since those people received very high prices for the shares they sold to Sime Darby, they might side with Sime Darby and vote in a block.

I also didn't like the way the Securities Commission (SC) explained their decision, it is a complicated matter that deserved more explanation.

Both the SC and Bursa Malaysia have a horrible track record regarding acting or voting in favour of minority shareholders against blue chip companies and well known majority shareholders. I don't know a single case where they actually came up for the interests of the minority shareholders.

The only things they have done recently is put some less known directors in jail, increased the fines and punished some insider trading (for very low amounts, without admitting guilt, in cases that were many years old). In itself good, and an clear improvement compared to the past, but still very far away from an ideal situation for Minority Shareholders.

When I asked SC & BM for a single "independent" advice (given in important decisions like Related Party Transactions and Privitizations) where the advise went against the majority shareholder, it was very quiet, they could not come with a single example. Needless to say, not a single "independent" advisor is ever punished for his biased advice.

The sad things is, I think there are good people inside SC and BM. SC and BM also really want to promote Malaysia as an international destination for foreign fund managers. But eventually, both SC and BM will always side with the powers that be. Completely in contrast with their own mission statement:

Malaysia still has a very long way to go. But may be this case can bring some much needed realism back with the authorities. I hope the minority shareholder will win, that will be an encouragement for others to follow suit. And may be one day SC & BM are really changing for the better. It is long overdue, and I can talk from my own experience.

http://www.themalaysianinsider.com/business/article/minority-shareholder-sues-sc-over-simes-eo-offer-waiver/

"Minority shareholder sues SC over Sime’s E&O offer waiver"

From The Malaysian Insider, December 23, 2011.

KUALA LUMPUR, Dec 23 — A minority shareholder of E&O Bhd is suing the Securities Commission (SC) for failing to compel Sime Darby Bhd to make a general offer for all the shares in the property developer after the conglomerate acquired a 30 per cent stake in August for RM776 million.

Singapore’s The Straits Times reported today that Michael Chow Keat Thye, a minority shareholder of E&O, is seeking to overturn the waiver granted to Sime Darby by the industry regulator, which he maintains was “irrational and one which no reasonable body would have reached”.

The newspaper described the legal challenge as a rare display of minority shareholder activism in corporate Malaysia with far-reaching implications.

“Should Mr Chow succeed in his suit, Sime Darby would be compelled to make a general offer for the E&O shares it does not already own, an exercise that would cost the plantation-based conglomerate an additional RM2.6 billion and put a major strain on its internal financial position,” the newspaper said.

Chow’s lawyer, Datuk Shafee Abdullah, told The Straits Times that the High Court has decided there are legal grounds to review the SC’s decision on the E&O deal.

“We have obtained leave from the court to seek a judicial review and we will be filing our papers this week on the SC,” he said in a telephone interview with the newspaper. Shafee added that the SC would then have to refute the grounds raised by his client in the suit before a High Court judge.

“Under judicial reviews, cases are usually heard quickly. So we expect to be in court soon,” said Shafee.

When contacted, an SC spokesman told The Straits Times: “SC is aware of the application and will oppose the application when the matter comes up for hearing.”

Sime Darby purchased its controlling 30 per cent interest from three major shareholders, including Singapore’s GK Goh Holdings, at the end of August in a deal that valued E&O shares at RM2.30 apiece.

The purchase price represented a 60 per cent premium over the value of the shares in the company on the open market when the deal was announced.

The newspaper also said the minority shareholder suit is also likely to stoke growing concerns over corporate governance issues in Malaysia and renew criticisms against the SC over its supervision of the capital markets.

The E&O deal had triggered unease over the widely perceived coddling by the SC of large state-controlled companies at the expense of minority shareholders when exercising its authority on corporate takeovers.

A similar controversy is brewing in the proposed takeover of a commanding 43 per cent interest in national car manufacturer Proton by conglomerate DRB-Hicom, a group controlled by the politically well-connected Tan Sri Syed Mokhtar Albukhary, the paper added.

Last week, former prime minister Tun Dr Mahathir Mohamad, who is Proton’s adviser, publicly gave his backing for DRB-Hicom’s proposal to buy the stake from state-owned Khazanah Nasional and suggested that the deal should be structured in a way that there was no need for a general offer for publicly listed Proton.

On a separate level, the legal suit could renew debate over the SC’s handling of alleged irregular trading activities, the newspaper reported. The E&O deal has put SC chairman Tan Sri Zarinah Anwar in a tight spot as her husband, who is also the E&O chairman, raised his personal stock holdings in the company just weeks before Sime Darby announced its proposed acquisition of the 30 per cent interest in the company.

In previous queries with regard to the trading in E&O shares, a spokesman for the watchdog agency said it was “examining all transactions in the Sime Darby-E&O deal”.

“The SC’s investigation into the trading of E&O stocks is still ongoing,” he added.

Malaysia’s takeover rules stipulate that any party that acquires more than a 33 per cent interest in a publicly listed entity must carry out a general offer for the remaining shares. A general offer can also be triggered if a new party buys less than 33 per cent but secures management control of the target company.

Sime Darby acquired its 30 per cent interest from three of E&O’s main shareholders: businessman Terry Tham Ka Hon, GK Goh Holdings and a group of investors led by businessman Tan Sri Wan Azmi Wan Hamzah.

Sime Darby’s block is below 33 per cent, while the collective shareholding of the three main shareholders of 41.7 per cent was cut to 11.5 per cent under the deal. Six weeks after Sime Darby’s purchase, the SC ruled that the plantation-based conglomerate did not have to make a general offer.

Chow is arguing otherwise and is seeking a court ruling to force the SC to revoke the waiver for a general offer. In his affidavit, he contended that the premium Sime Darby paid for the E&O block was clearly to obtain control of the company.

“If obtaining control of the company (E&O) was not the basis, motive or reason for Sime Darby’s acquisition, then it would have acquired the company’s shares over a period of time in the open market at a considerably lower price,” he stated in his pleadings to the High Court.

He also contended that Sime Darby’s equity interest “eclipses the combined shareholding of the next 30 biggest stockholders” and any denial by the conglomerate that it has a controlling stake in E&O would be “absurd”.

To further buttress his claims, he highlighted a collaboration agreement between Sime Darby and E&O.

“There is no doubt that the collaboration agreement was offered by the vendors as demanded by Sime Darby as an inducement or sweetener for the payment of the substantial premium demanded by the vendors,” he said.

In his affidavit, Chow noted that E&O had 20,302 recorded stockholders in the company.

“Except for the three privileged vendors who sold their controlling stake in the company to Sime Darby and managed to reap more than a quarter billion ringgit in premium, the rest of the 20,299 stockholders suffered a collective loss of more than RM678 million,” he stated in his affidavit.

What is wrong with good old fashioned bonds?

I don't agree with the below article in The Edge Financial Daily. The ICSLS of E&O are irredeemable, in other words can not be converted back to cash, the holder has no choice. But if they always convert to shares then somebody who wants to value the company should calculate the number of shares on an "as converted" basis, in other words with the shares being diluted. There is a difference in some matters like voting at AGM's (an ICSLS does not count as a share), liquidation events (ICSLS often have preference at liquidation events), but that does not matter in the normal cause of action.

Instead of these difficult instruments that are often misunderstood, why are companies not just issuing plain bonds? Are they not sexy enough? There was a time when they were quite normal on the Bursa Malaysia. What has happened, why are they not used anymore?

I am of the opinion that the share market can perfectly well operate with:

• Shares: investors invest money in the company for a piece of the company, and will receive back dividends when declared;
• Bonds: investors loan money to the company, they don't get a piece of the company, but they will receive a fixed interest rate and at the maturity date they receive back their money.

Shares appeal more for the risk seekers who are looking for capital appreciation and/or dividends. Bonds appear to risk averse people, like pensioners, who want stable income.

There is no need for difficult instruments like Irredeemable or Redeemable Loan Stocks, Warrants, Options and what do you have.

E&O could have just issued plain old bonds, at such a interest rate that it was enough attractive for investors to buy them, without causing any dillution for the shareholders. Of was this a too simple solution for the corporate advisors, would they receive lower fees for such a solution?


http://www.theedgemalaysia.com/highlights/196425-simes-eao-premium-to-rise.html

Sime Darby Bhd’s already expensive acquisition of Eastern & Oriental Bhd’s (E&O) shares could look even more pricey after the surprise announcement last night that the latter will be converting an estimated 220.11 million loan stocks into ordinary shares before year-end.

E&O announced on Bursa Malaysia yesterday that it will be converting all its remaining 10-year 8% irredeemable convertible loan stocks (ICSLS) issued in 2009 to new ordinary stock units of RM1 each on Dec 27. The number of oustanding ICSLS was not indicated, but totalled 220.11 million as at June 30, 2011.

When the 220.11 million shares enter the market at the end of the year, the resulting dilution in book value per share coupled with a potentially large share overhang could well make Sime Darby’s RM766 million stake in E&O come at a greater premium as the price-to-book value of its acquisition rises and the share price falls.

To recap, Sime Darby had bought 273 million ordinary shares and 60 million ICSLS from three vendors — E&O managing director Datuk Terry Tham, Tan Sri Wan Azmi Hamzah and GK Goh Holdings of Singapore at a 60% premium to the market price, or RM2.30 per share.

Issued in 2009 as part of a fundraising exercise, the ICSLS are due only in 2019. However, E&O said that based on conditions stipulated in the Trust Deed dated Sept 11, 2009, the company is exercising its rights of mandatory conversion, and the early conversion shall be on Dec 27 at 5pm.

E&O may convert the ICSLS at any time after the second anniversary of the issuance with the sole condition being that its three-month volume weighted average price (VWAP) exceeds RM1 preceding the exercise.

The three-month VWAP as at Nov 17 was RM1.52, skewed upwards by the jump in price following Sime Darby’s acquisition.

The ICSLS have a conversion price of RM1 per E&O share. As they were issued at 65 sen, the remaining 35 sen will be debited from the company’s share premium account.

Based on E&O’s June 30 balance sheet, there were 908.90 million E&O ordinary shares issued. The conversion of the ICSLS will increase that figure by 24.2% to 1.129 billion shares, according to estimates by The Edge Financial Daily.

However, given that Sime Darby also holds 60 million ICSLS, the conversion will not materially dilute Sime Darby’s 30.04% stake in E&O, which will fall slightly to 29.49%.

Sime Darby should not be adversely affected as it had the foresight to acquire the 60 million ICSLS to ensure it would continue holding close to 30% of E&O. Otherwise, its stake would have been diluted to 24.18%, according to The Edge Financial Daily’s estimates.

An analyst estimated, based on “back of the envelope calculations” that resulting from the conversion, E&O’s book value per share will fall to RM1.06 from RM1.24 at the time of Sime Darby’s acquisition.

This is because, while the number of ordinary shares has increased by 24%, total equity will increase by only 4% to roughly RM1.2 billion due to RM71.61 million of the ICSLS located in non-current liabilities being transferred to shareholders funds, he said.

Another RM60.66 million in ICSLS is already parked under shareholders’ funds. The conversion of this tranche would not increase total shareholders’ funds.

On the other hand, earnings per share will remain mostly unaffected, only dipping to 4.77 sen  from 4.8 sen for the quarter ended June 30, due to the high 8% coupon rate attached to the ICSLS.

Tham held about 65 million ICSLS as at July 29, but that figure should be much lower as he and the other vendors sold their ICSLS to Sime Darby.

When the ICSLS are converted at year-end, there will be over 160 million shares flooding the market excluding Sime Darby’s 60 million ICSLS. The resulting overhang could further depress E&O’s share price and exacerbate Sime Darby’s paper losses.

Furthermore, the flood of liquidity coupled with depressed market price could provoke another entity to acquire a significant stake in E&O.

The second largest shareholder with a 6.3% stake, ECM Libra had attempted, but failed, to nominate two directors to the board of E&O on Sept 30.

E&O ended down one sen to RM1.41 yesterday with 1.06 million shares traded. Year to date, the stock has risen by 6.82% from RM1.21.

This article appeared in The Edge Financial Daily, November 18, 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:

http://www.theedgemalaysia.com/highlights/194456-no-mandatory-go-for-eao.html


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.

E&O Minority Shareholders grill the Managing Director

Good: "The six-hour meeting started with minority shareholders taking the chance to grill E&O managing director Datuk Terry Tham Ka Hon on his share sale with Sime Darby Bhd." 

Bad: "Generally, many minority shareholders as well as MSWG were not satisfied with the replies given to the questions raised at the meeting"

Bad: "The media was not allowed to enter the meeting" (authorities really should try to do something about this, either by changing the rules or putting more pressure on companies to allow the press to attend AGM's or EGM's)

Strange: "why ECM Libra decided to seek representation on the board" (only holding 6.4% of the shares)

Strange: "Sime Darby has not nominated any representation to the board" (holding 30% of the shares)

Disappointing: the long time that the Securities Commission needs for its decisions (but these are tough decisions and I am hoping for not only good and fair decisions but also the reasoning behind them for future cases)

Disappointing: that the big players in this saga hardly ever mention the rights or the plight of the Minority Shareholders, the mentality Anno 2011 is scary to say the least. There are luckily many companies in Malaysia with a better attitude, the way the Board of Directors of SP Setia reacted on PNB's offer is just one example.


The Saga continues .....


http://www.btimes.com.my/Current_News/BTIMES/articles/EOREJ-2/Article/index_html

ECM fails in E&O board bid

By Zaidi Isham Ismail

Kuala Lumpur: Eastern & Oriental Bhd's (E&O) shareholders voted against having two new directors nominated by ECM Libra Financial Group Bhd in a marathon meeting yesterday.
The six-hour meeting started with minority shareholders taking the chance to grill E&O managing director Datuk Terry Tham Ka Hon on his share sale with Sime Darby Bhd.

A minority shareholder told Business Times that the initial part of the meeting were mainly questions from minorities for Tham.

"They wanted to know, among others, why he didn't insist on a general offer. He said since the matter is under investigation, he cannot say much," the shareholder said.

The Minority Shareholder Watchdog Group (MSWG) confirmed that these were among the questions raised.


"Generally, many minority shareholders as well as MSWG were not satisfied with the replies given to the questions raised at the meeting," the MSWG said in a statement.

The media was not allowed to enter the meeting, in which lawyers Mahadzir Azizan and Leong Kam Weng, nominees of ECM, introduced themselves. But they failed to win the seats after voting was carried out by poll.

E&O deputy managing director Eric Chan Kok Leong said 75 per cent voted against the election of Mahadzir and Leong, while the remaining 25 per cent voted for. Some 60 per cent of E&O shareholders turned up.

"Sime Darby has not nominated any representation to the board. We haven't had our first meeting yet but we plan to meet in October to discuss the next plan of action," Chan told reporters after the meeting.

Analysts expected the meeting to be emotionally charged as shareholders did not enjoy the same premium paid by Sime Darby to buy a 30 per cent stake in the Penang-based property company.

Sime Darby paid RM2.30 a share, a 60 per cent premium to the market price then.

The sellers were Tham, Singapore's GK Goh Holdings Ltd and Tan Sri Wan Azmi Wan Hamzah. Sime Darby has defended the deal, saying it may do so in the future.

ECM Libra, an investment bank, holds some 6.42 per cent of E&O.

Chan described the mood of shareholders as high in energy and excited to meet the management.

However, he sidestepped questions on more details of the Sime Darby-E&O collaboration. He said shareholders were seeking clarity on the collaboration during the meeting and did not elaborate.

Chan also does not know why ECM Libra decided to seek representation on the board.

For future plans, Chan said the group is focused on promoting E&O's brand to sustain growth for the long term.

On its joint venture with subsidiaries of Khazanah Nasional Bhd and Temasek Holdings Pte Ltd to develop a township in Iskandar Malaysia, Chan said the masterplan has been approved but it will be revised by both parties one more time.

"We will resubmit in January 2012 and expect another six months for it to be reviewed by the authorities," said Chan.

Cloud over Sime's E&O stake darkens

Today was the AGM and EGM of Eastern & Oriental (E&O). Both En. Mahadzir Bin Azizan and Mr. Leong Kam Weng were not elected. Both were the nominee's of ECM Libra.

http://www.bernama.com.my/bernama/v5/newsbusiness.php?id=616941

Below article is from the Singapore Business Times:

Collaboration deal sparks question of effective control

By S JAYASANKARAN IN KUALA LUMPUR

in Kuala Lumpur NEW questions are surfacing over conglomerate Sime Darby's purchase of a 30 per cent interest in property developer Eastern & Oriental (E&O) a month ago.
Already, there is pressure building for Sime to make a mandatory general offer (MGO) to E&O minority shareholders as the plantations-to-property group had paid a 60 per cent premium for the 30.2 per cent stake it bought from three shareholders.

The sellers are E&O chief executive Tham Ka Hon, businessman Wan Azmi Wan Hamzah and Singapore-based broker GK Goh. Sime paid the three RM766 million (S$311 million).

The Securities Commission (SC) has said that it was investigating the deal. 'We are also examining the circumstances surrounding the transaction for any Takeover Code implications,' the SC said in response to local media three weeks ago. 'Our course of action will be based on our findings.'

It isn't clear when its findings would be disclosed. The ramifications of the SC decision could be serious. If it finds for E&O minorities, Sime would have to fork out RM1.8 billion for the remaining 70 per cent. If acting-in-concert is proved, then all parties - Sime and the three sellers - would have to fund the GO.
The acting-in-concert theory came about because of the high price paid. This angle has been vigorously denied by Sime chief executive Bakke Salleh, Mr Tham and Mr Wan Azmi.

Mr Wan Azmi also debunked the theory that Sime might not have acted within the spirit of the law. 'If a buyer buys less than what the code defines as the trigger, do we always have to assume that the intentions of the code have been violated?' Mr Azmi told The Edge weekly. 'That would be rather disingenuous.'

Analysts have begun turning their attention to the collaboration agreement between Sime and E&O, an agreement signed the same day as the sale and purchase agreement. This is tied to the Takeover Code which, while it specifies 33 per cent as the trigger point for an MGO, also permits MGOs for purchases of less than that if it can be proven that it comes with effective control of the company so purchased.
Sime does not appear to control E&O. It has no directors on the firm's board and E&O's management remains the same with Mr Tham agreeing to remain CEO for three years, the same period that the collaboration agreement lasts.

The collaboration agreement, which was announced to the stock exchange by Sime, seems innocuous enough. It calls for the sharing of knowledge and expertise, the leveraging of mutual competencies and, where agreed, the joint exploitation of economic opportunities. It also says that the agreement 'shall be in full force and effect' for a period of three years.

'What does that mean?' asks an analyst. 'Does that mean E&O can still do a joint development with, say, SP Setia or anyone it likes? Or do they, under the collaboration agreement, have to ask Sime's permission first? If so, who controls whom?'

These questions are likely to be asked at an extraordinary meeting of E&O shareholders in two weeks. It was called for by investment bank ECM Libra which has, directly and through the pension funds it manages, almost 11 per cent of E&O stock. According to news reports, the investment bank wants two ECM-sponsored directors appointed to E&O's board.

Mr Bakke of Sime has remained open to the possibility of a general offer. 'At an appropriate time, we will consider a GO,' he told The Star newspaper. 'It could happen sooner or later but that will be a business call.'

Most analysts have taken that to mean that the conglomerate might consider it after six months - the period after which the highest-transacted-price clause no longer holds. That would mean Sime could make a voluntary general offer for E&O at below RM2.30, the price that it paid the three sellers.
It could, for example, make a bid at RM1.80 and substantially lower its average price. E&O shares currently trade at RM1.45.

Updates on Corporate Exercises

Sime Darby / Eastern & Oriental: no news yet regarding a possible Mandatory General Offer (MGO) by Sime Darby or the investigation regarding possible insider trading. On one side we want a fast decision regarding the MGO, every day that goes by people trade the shares of the two companies with incomplete information. On the other side, we do want a good and proper decision, hopefully with an detailed and clear explanation to which future cases can refer back to. Sime Darby's share price suddenly plunged on the possibility of having to make a MGO. But E&O's shareprice is very much below the possible MGO price. The two contradict each other, it will be an interesting case to follow.

Pan Malaysian Industries Berhad (PMI): No news, the majority shareholder is buying some shares of PMI at the market for RM 0.045. The announcement of the unconditional take-over offer was made on August 26 2011, the offer document would be posted within 21 days, that has passed already. PMI also still needs to appoint at least one more independent director (there is only one at the moment), I think they are too late with that as well.

Eastern Pacific Industrial Corporation Berhad (EPIC): the offer document relating to the unconditional take-over offer for RM 3.10 per share and the compensation document for the cash compensation have been posted on September 14, 2011. Alliance Investment Bank will be independent adviser.

DXN Holdings Bhd: conditional take-over offer for RM 1.75 per share. OSK Investment Bank will be the independent adviser (announcement September 8, 2011).

DXN and EPIC are both very decent companies and it would be a pitty if they would be delisted. I am afraid that the chance of both being delisted is quite high though. Instead of trying to persuade foreign (especcially Chinese) companies to list in Bursa Malaysia, I think it would be more worthwhile to investigate why these very decent, medium sized companies are going for delisting. The overall quality of the 1000+ listed companies is already not that great, hundreds and hundreds of listed Malaysian companies have a long term Return On Equity (ROE) below the yield on a Fixed Deposit.

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.