Will SC require general offer on remaining shares of E&O?

PETALING JAYA: Questions have been raised as to whether Sime Darby Bhd will be required by the Securities Commission (SC) to launch a mandatory general offer (MGO) for the remaining shares in Eastern & Oriental Bhd (E&O).

This stems from the recent announcement by Sime Darby that it was buying a 30% stake in E&O from a group of shareholders at a price that worked out to a 60% premium to market at the point of the announcement.

While the Takeover Code states that an MGO is only triggered by a 33% or more change in shareholding, there are other instances in which an MGO can be required by the regulator.

According to Para 6.2 of Practice Note 9 of the Takeover Code 2010, the SC has the right to consider all surrounding circumstances to deem if control has been passed to a new party, thereby mandating the new party to launch a general offer.

Among the specific criteria laid out in Para 6.2 is “the consideration for the acquisition of the voting shares” in other words, the premium to market that was paid for those shares.

Other criteria that will be looked at include changes to the composition of the board and to the business of the target company.

A corporate lawyer explained: “Under this provision, acquisition of voting shares higher than the fair value or market price of the voting shares may tend to suggest that the acquirer has obtained control of the company.

“Ultimately, the SC would need to be satisfied that all the evidence gathered demonstrates that the vendor is acting in concert with the acquirer such that the acquirer could exercise control, which is equivalent to having more than 33% in the company and which in turn requires it to conduct an MGO.”

Just before the Hari Raya break, Sime Darby had announced it was acquiring a 30% block of E&O at a price of RM2.30 per share when the market price of those shares was RM1.45. The deal is scheduled to be completed this Friday.

Sime Darby is set to acquire 273 million shares in E&O and 60 million irredeemable convertible secured loan stocks, representing a 30% equity interest, for RM766mil cash.

When the deal is done, Sime Darby will be the single largest shareholder of E&O.

The vendors of the block are E&O managing director and founding member Datuk Tham Ka Hon, Tan Sri Wan Azmi Wan Hamzah and Singapore-listed GK Goh Holdings Ltd.

E&O's share price has risen steadily since the acquisition was announced, closing yesterday at RM1.67 just three sen short of its three-year high of RM1.70 at the peak of the rumours about its supposed merger with SP Setia Bhd.

The most recent uptrend in E&O's share price began since Aug 24.

Just two weeks prior to that, several shareholders of E&O had raised their stakes in the company. GK Goh, on three consecutive days, increased its stake to 12% while Datuk Azizan Abd Rahman, a director of E&O, purchased 100,000 shares.

However, it should be noted that the possibility of triggering the MGO would not arise if the vendor of the shares did not hold any more shares in the target company.

Such was the case of Khazanah Nasional Bhd's divestment of its 32.2% stake in Pos Malaysia Bhd. As Khazanah did not own shares in Pos after the divestment, the buyer could not be deemed to be in control of Pos.

In Sime Darby and E&O's case though, all three vendors of the 30% block will still hold a collective 12% stake in E&O post-transaction.

In an interview with a business weekly, Sime Darby denied any collusion with the vendors of the block. As at press time, the SC had not replied to queries from StarBiz.