If Eastern & Oriental Bhd (E&O) minority shareholders think they are owed a buyout offer from Sime Darby Bhd at RM2.30 apiece, it looks like they will need to work harder to prove it.
As it is, the Securities Commission (SC) has decided that Sime Darby and E&O managing director Datuk Terry Tham Ka Hon — who collectively own more than 33% of E&O — are not parties acting in concert and are thus not obliged to make a mandatory general offer (MGO) for the rest of E&O.
What’s interesting, however, is the second part of what the SC had to say about the matter: that it could still decide that an MGO is in order, should new facts arise.
“The SC’s finding is without prejudice to a review of the decision should new facts arise in relation to the matter and the SC’s right to take appropriate action provided under the securities laws as a consequence of such a review,” Sime Darby’s statement yesterday read. In a separate statement, the SC said its decision was made after conducting interviews, going through the relevant documents and checking precedents in Malaysia as well as rulings in other jurisdictions on similar issues.
The sceptic, of course, would say the SC made the easiest decision of maintaining status quo. In reality, the matter at hand is really not that simple.
For one, a decision to order an MGO in Sime Darby’s case could, in effect, open the floodgates on who else are deemed parties acting in concert or PACs in short. After all, ask any investment banker how to skirt an MGO and they’ll tell you precisely how to do it. The rules are so simple that you can even ask the “uneducated” reporter who’ll tell you “remember don’t change the chairman”.
That is why companies are almost 100% certain they will not need to make an MGO by just buying less than a 30% stake and keep the management almost as it is.
Even liquidators play the same game by breaking up a strategic block so that it can get a buyer for most of the shares.
The only caveat to skirting around the letter of the law is the SC, who has the power to decide what the rule of the game is. Simply put, getting the SC to see their point is the minorities’ only hope.
And the issue doesn’t end at the mustering of will to set precedence.
Even after deciding that an MGO should be triggered, there is still the decision on who are entitled to an MGO.
Specifically, where should the cut-off date be? Should it be everyone who at one time held E&O shares from the day Sime Darby buys the strategic 30.2% stake in E&O? Is it fair to only compensate the names appearing on E&O’s register the day the sale of the 30.2% block was announced, as that in effect means the MGO cost for the acquirer doesn’t change?
Could the solution to the issue be to compel acquirers to make an upfront voluntary offer in return for taking over the reins by making it expensive for corporations to skirt the rules?
One way this could be done is if the SC decides that the MGO must be extended to everyone who at any time after the Sime Darby purchase, held the target company shares. This, would in effect, raise the cost of an MGO for the acquirer as compared with capping the cost by only using the shareholder list at the trigger date.
When asked how the SC makes the distinction between who’s acting in concert and who’s not and where the line is drawn, its spokesperson told The Edge Financial Daily that that “depends on the facts of the case and the inferences which can be drawn from the evidence gathered”.
As the rest of us ponder the nuances of the SC’s words, one cannot help but wonder which side does the SC choose to err on when in doubt — deal-makers or minority shareholders, both or neither? That choice often shows what one deems more important..
Written by Commentary by Cindy Yap, theedgemalaysia.com
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