Letter to the editor: SC should look into E&O share price movement before offer

I read with some interest the fuss and furore over the recent purchase of a 30% stake in Eastern & Oriental Bhd (E&O) by Sime Darby Bhd. Some quarters have complained that the premium is too high, while others whined that the 70% remaining shareholders missed out. Disgruntled minority shareholders and commentators have asked for the Securities Commission to intervene and the SC has responded that it will examine the circumstances of the transaction.

We can wonder why a willing buyer willing seller crossed deal should fall foul of anything. Sime Darby, is within its rights to buy less than a 33% stake to avoid a mandatory general offer (MGO). This may prove to be a prudent strategy, only time will tell. Realistically, it would not have been possible for Sime Darby to build up a sizeable stake in E&O from the open market, without attracting interest from short-term speculators. I remember not long ago, E&O was the subject of takeover rumours involving the property giant SP Setia and correspondingly we saw volatility in the share price. Sime Darby can choose to buy the 30% block at a price that it feels is fair. If investors disagree with the strategy of Sime Darby, they can sell or avoid Sime Darby shares.

Have minority shareholders of E&O been disadvantaged? They still own the same number of shares before the deal; no dilution has occurred. After the deal, the price has moved up from RM1.40 to firm up around RM1.70. In fact, minority shareholders enjoyed a bit of a boost. So what is the reason behind the complaint? Could it be that the RM2.30 price tag for the 30% vendors is too sweet from the minority shareholders’ perspective? They must be wondering where is their extra 60 sen (Sime Darby offer price minus current share price)?

Looking at the storm of negative publicity the deal has generated, it seems that there may be more to this story. Since late July 2011, the heightened volume and share price volatility in E&O is remarkable. Maybe the E&O deal frustrated some speculators who were banking on an MGO outcome to cash out big time? The SC should also expand the scope of its investigation to look into the unusual trading activity prior to the Sime Darby offer. I doubt that long term minority shareholders would be behind such moves.

Khor Yu Leng
( khorreports@gmail.com ) 

Written by Financial Daily