SC scrutinising Sime’s purchase of E&O stake

PETALING JAYA: The Securities Commission (SC) is “examining the circumstances of the transaction” involving Sime Darby Bhd buying a 30% stake in Eastern & Oriental Bhd (E&O), the regulator said in an email reply to questions from StarBiz.

The SC also said that the premium paid by Sime Darby for the 30% in E&O “is one, among several factors, which the SC will take into consideration in deciding whether an acquirer has obtained control of a company, as provided by Para 6.2 of Practice Note 9 of the Takeover Code 2010”.

To recap, questions have been raised as to whether Sime Darby will be required by the SC to launch a mandatory general offer (MGO) for the remaining shares in 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 where control can be deemed to have passed, thereby giving the regulator the power to require the buyer to make a general offer.

The possibility of triggering an MGO arises if an acquirer has bought between 20% to 33% of a listed company and the vendor of the shares still retain shares in the company (to the extent that if combined with the buyer, the total would be more than 33%). All three vendors of the E&O block of shares being sold to Sime Darby will still retain a collective 12% in E&O post transaction.

Meanwhile, investment bankers said that there was nothing to stop another party from making a general offer at a price lower than what Sime Darby offered. “Since the other shareholders are not entitled to Sime Darby's offer, they could be tempted to sell to a new offeror if the price is right, even if it's less than the RM2.30 per share offered (by Sime Darby),” said one banker. If that happened, Sime Darby would be in a tough spot, considering that another party could assume control over E&O.

However one research head at a foreign brokerage said it was unlikely any party would come forward now to make a general offer, considering the high price benchmark already set by the Sime Darby offer. “Furthermore, whoever owns E&O must be prepared to sink more capital into the company for development and reclamation work in Penang,” he said.

To recap, Kenanga Research said in its report last Friday that it was slightly negative on Sime Darby's purchase of equity in E&O, as the RM766mil paid for the stake purchase could have been better utilised to expand its plantation land or its motor segment in China.

Kenanga also said that the price tag of RM2.30 per share appeared expensive, being 5% above its in-house fully-diluted sum-of-parts realisable net asset value (RNAV) of RM2.19 for E&O and 59% above E&O pre-suspension price of RM1.45.

“However, Sime Darby estimated the deal to be 20% discount to E&O RNAV of RM3.2bil,” it said.