THE year 2010 marked a busy year for low-key billionaire T. Ananda Krishnan, having scored a hattrick in privatisations of his companies from the equity markets.
Ananda bought out Astro All Asia Networks plc, Measat Global Bhd and Tanjong plc, effectively removing a whopping RM18.8bil from the capital market.
The closeness in timings of the deals set tongues wagging if Ananda’s move meant he had lost confidence of the Malaysian capital markets or if he had a fall out with the powers-that-be.
Others espoused the theory that Ananda was “asset stripping”– taking out the more valuable and growth-driven overseas assets and only bringing back to Bursa Malaysia the unexciting domestic assets.
After all, that’s what he did in 2007; soon after Maxis Communications Bhd was delisted and privatised, Ananda sold 25% of the company to Saudi Telecom for a high price. Three years later, Ananda re-listed Maxis on Bursa minus its overseas operations.
Chances are that Ananda’s deals had more to do with astute business decisions, made primarily in the best long-term interest of major shareholders but done so with the least amount of unfairness to minority shareholders.
The underlying rationale for all of Ananda’s privatisations thus far are that his companies are going through capital intensive periods, whereby capital calls will be the norm and dividends and repayments the exception.
More importantly, in all of his privatisation deals, Ananda had opted to take the more arguably onerous route – taking over companies by making a general offer for shares of those companies rather than proposing to buy their assets and liabilities.
Furthermore, all the offer prices of Ananda’s 2010 takeovers were done at a decent premium to the last-traded market price of those stocks (see table).
Indeed, if enough of shareholders decided not to support the deal, they could have “forced” these companies to remain listed.
So despite the momentous exit of Ananda’s key businesses from the capital market, the effects of his move are mitigated by several factors – his method of taking the companies private, the decent offer prices at which he has bought out the minorities, and the re-entry of Maxis last year.
In addition, there is also the possibility that a reshaped Tanjong and Astro could come back into the market ala Maxis.
UEM Land-Sunrise merger
Without a doubt, the most-talked-about M&A in 2010 is UEM Land Holdings Bhd’s takeover of Sunrise Bhd.
The deal was not only innovative – it’s rare that you have a group of entrepreneurs giving up control of their prized assets to a government-linked company (GLC) while remaining in the enlarged group as minority shareholders – it also set the stage for other mega property M&As to take place.
In a nutshell, UEM Land launched an RM1.4bil takeover of Sunrise at RM2.80 a piece, with the latter’s shareholders having the option to accept 1.33 UEM Land shares at an issue price of RM2.10 for every Sunrise share surrendered or to accept 2.8 unlisted redeemable convertible preference share (RCPS) in UEM Land at an issue price of RM1 for every Sunrise share.
The stated rationale for the deal is that the merged entity will become a “leading real estate company by market value, land bank and total assets” not just in Malaysia but in the region.
It will also allow UEM Land to leverage on Sunrise’s strong brand equity, knowledge in developing the so-called “lifestyle experience”, its capable management team and its good track record in property development.
UEM Land will benefit from consolidating the earnings of Sunrise into its books. Sunrise has RM3.2bil in gross development value for new projects till the end of next year with RM1.2bil in billed sales and boasts an admirably high gross margin of 30%.
The deal attracted its fair share of critics. The deal, they say, is more favourable to Datuk Tong Kooi Ong – Sunrise’s chief steward and its single-largest shareholder – than to UEM Land.
For one, the effective offer price of RM3 per share (after taking into account a 20 sen dividend by Sunrise) and using the base share price of RM2.26 (the price it was hovering days before the deal was announced), seems at a very attractive 20% premium to the market.
Tong will lose control of Sunrise but gets to play a major role in UEM Land, which if executed well, will earn him lots from his minority stake in UEM Land.
As for UEM Land, the question being asked is, why couldn’t this GLC just have bought the necessary professional expertise on a project-by-project basis instead of spending RM1.39bil to buy expertise and brand? There is also a concern that the deal paves the way for Tong to exit the property sector in a lucrative way.
In defence of Tong though is this – he is taking the RCPS, which are not tradable for two years, which in effect ties him to the new merged entity.
In any case, the market has spoken and given life to the deal. As at Dec 24, 2010, UEM received acceptances representing more than 90% of Sunrise’s shares and said it intends to compulsorily acquire the balance 10% if necessary, which will lead to Sunrise’s eventual delisting from Bursa Malaysia.
PLUS’ privatisation
As far back as the early part of last year, there were rumours that PLUS Expressways Bhd would be the subject of a takeover bid.
Last August, private company Asas Serba Sdn Bhd made public its plans to not only swallow PLUS but also all highway concessionaires in the country for RM50bil with a promise to lower toll rates by 20% .
Then MMC Corp Bhd confirmed rumours that it had submitted a bid to takeover UEM Corp Bhd, PLUS’ parent company. Neither bids were accepted.
On October 15, a concrete plan to privatise PLUS was announced, with Khazanah Nasional Bhd and the Employees Provident Fund (EPF) offering a cash offer for the assets and liabilities of the highway concessionaire for RM23bil, which worked out to RM4.60 per share.
Using a co-investment vehicle, in which Khazanah’s wholly-owned unit UEM Group held 51% and the rest by EPF, the deal is said to have been the largest merger and acquisition in Malaysia this year. The deal was also tied in with an announcement in Budget 2011 that the Government will not raise toll rates for PLUS-owned highways for the next five years with immediate effect.
But then in late December, three days before PLUS’ EGM that was called to vote on the UEM-EPF offer, another competing bid emerged, with significant impact -- it was at a price that worked out to RM5.20 per PLUS share, 60 sen higher than the last offer.
The new bidders, a virtually unknown company called Jelas Ulung Sdn Bhd, is also promising to take over PLUS without having to have any toll rate hikes or compensation from the government. But due to the lack of information about Jelas Ulung and its funding capability, the independent directors of PLUS came up with a list of disclosure requirments for all bidders, which will force bidders to divulge exacting information about themselves, their bids and their plans for the target company post the acqusition.
By Jan 10, 2011, all bidders for PLUS -- there can even be new bids coming in, other than the two in play now -- will be revealing much more details about themselves and their bids that the market should have a much better idea of which bidder stands a chance. To be noted is that the UEM-EPF bid was a well conceived one. The deal has a two-pronged goal -- it enables PLUS to tweak the toll concession agreements to cut the rate of increase in toll rates; EPF can easily do this, given its stature, simply by reducing PLUS’ cost of funds. Second, the deal acted as a means to fend off such a strategic asset from falling in the wrong hands. On the other hand, minority shareholders of PLUS would surely want the best price for the assets. Hence the unfolding of this deal will certainly continue to hog the limelight in 2011.
HLB tries for EON Cap
It’s hard to talk about M&As in the Malaysian context without a mention on the colourful drama that ensued since Hong Leong Bank Bhd (HLB) first announced a takeover of EON Capital Bhd in January this year.
From the start, it seemed the deal was destined for the news pages. HLB had sought to buy out EON Cap via the assets and liabilities route and catapulted the debate about the fairness of this takeover method.
That’s because the HLB-EON Cap situation was a prime illustration of how the simple majority threshold of this type of takeovers could trudge the interests of other shareholders.
In this case, it was Primus (M) Sdn Bhd – a unit of Hong Kong-based investment company Primus Pacific Partners and the single-largest shareholder with a 20.2% stake in EON Cap – who stood to not only lose control over the bank but also be forced to sell out. That’s because other shareholders who collectively own more than 50% of EON Cap were agreeable to the sale.
However, there were allegations that Primus had not been keen on pumping in the required capital needed for the bank.
Hence following announcement of the deal, there were months of brawling and a torrent of recrimination among the feuding major shareholders and board.
Then the matter was taken to court. Primus, of course, keeps claiming that HLB’s offer was too low. Primus had paid RM9.55 per EON Cap share when it bought into the bank in 2007. HLB’s offer worked out to a price of RM7.30 per EON Cap share (revised upwards from its first offer of RM7.10 per share).
There have been concerns that HLB would walk away from the deal considering how convulated it had become. But insiders say HLB knows that if it get to buy EON Cap, it is getting it a good valuation.
No wonder then that recently, HLB extended the deadline for EON Cap to accept its offer to acquire the entire assets and liabilities to April 30, 2011. This will be the second time the deadline has been extended. The deadline had earlier been extended from Aug 15. - By RISEN JAYASEELAN, Starbiz.
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