Anything Wrong With Sime Darby's Acquisition Of E&O?

When you frame a headline like that, the answer is yes. Let's talk about the Mandatory General Offer Rule: it is there to safeguard the interest of minority shareholders. It is also a rule that recognises who is the "controlling shareholder".





When a company tries to skirt just under the radar, it did not do anything illegal. Sometimes its not the appearance alone that must be flawless, the intention must be full of integrity as well.


So, who controlled E&O before Sime Darby bought the 30% stake? Answer: Technically, nobody as no one owns more than 32%. Effectively XYZ, because alone or together in concert, they hold the largest individual stakes and collectively the largest bloc.


So, who controls E&O now after the purchase by Sime Darby? Answer: Technically, nobody as no one owns more than 32%. Effectively, Sime Darby by virtue of being the largest shareholder.


In most listed companies, there are no controlling shareholders, take the top 20 biggest companies in the US. The largest shareholder is usually just holding a few percent. So, how do they decide or prompt the CEO to act in the best manner for the shareholders? They have their board of directors.





In this case, what is the board doing? How can you allow the CEO and two substantial shareholders to sell effectively the largest bloc of shares to one party, and not triggering a MGO? Well, can the board do anything in the first place? Possibly very little. But you can censure the CEO for sure. Can you really say that there was no knowledge among the 3 sellers in selling to Sime Darby, let's see if you can get a proper not guilty verdict from a jury of your peers.


If you argue on good corporate governance, this fails the test just looking at the facts. It might be OK if a substantial shareholder manages to sell their shares to a willing buyer at higher than market price. It really IS NOT OK when one of them is the CEO as well.


It is also galling that Sime Darby, itself fresh from a hurricane of mismanagement, poor corporate governance issues ... would be part of this charade, and had the gall to say its not collusion. Tell me this, if Tajuddin's stake in MAS was just 30% and somebody bought at RM8 (a price never to be seen for the next 15 years) nearly double the prevailing market price - can you see anything wrong with that when there is no MGO.


Minority shareholders are placing their investments and trust in the CEO and the board of E&O to run the company well and collectively benefit as the company grows. Now, it looks like the biggest substantial shareholders together with CEO acted in collusion to sell what is effectively close to a controlling stake, WITHOUT ANY REGARD for minorities' interest.





Most CEOs will tell their shareholders to be patient to get the full reward of holding their shares. Long term investments are largely based on that implied trust. How to be patient when the CEO gets a deal much higher than its 52 week high? So, what would that CEO say now: "eerr, you guys have to be patient a bit longer, I am sure Sime Darby will create more value for you"???!!!