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The politics of mergers (2) January 24, 2007

Posted by elizabethwong in Current Affairs, Economy, Malaysia, Note2Self.

Part (1) here

(1815 H) According to Reuters:-

Synergy Drive is to absorb the assets of Sime Darby (SIME.KL: Quote, Profile , Research), Kumpulan Guthrie (KGBK.KL: Quote, Profile , Research) and Golden Hope Plantations (GHOP.KL: Quote, Profile , Research) in a signed pact to merge and create the world’s largest listed palm oil planter.

Synergy Drive news release here.

(1343 H) CIMB’s Nazir denies any knowledge, according to Bernama.

“I am not signing anything. We haven’t heard about it.”

“If there is, we will inform you at the appropriate time. The appropriate time I believe is after 5pm”

According to Business Times today, all parties are ready to sign on to the merger today. (see below)

This is five days earlier than the requested postponement to 29th Jan, and according to the writer, PNB was “firmly” told, after a “high-level government meeting” that the authorities wanted the deal finalised, and that the merger was “good for the companies, the market and the country”.

1. But shouldn’t a powerhouse such as PNB know in the first place what is good for their companies and the market?

2. Did PNB forgo on its earlier demand on inter-conditionality?

3. Who was present in the “high-level government’ meeting”?

Out of sheer curiosity, just how did the merger, initially valued at RM 31.4 billion balloon to RM 39 billion in two months?

Mega plantation merger deals set to be inked today

By Rajan Moses, Business Times
rajanm@nstp.com.my, January 24 2007
SYNERGY Drive Sdn Bhd is finally set to sign agreements today to initiate the merger of three leading plantation firms owned by Permodalan Nasional Bhd (PNB), sources said.

The signing of the agreements with Sime Darby Bhd, Kumpulan Guthrie Bhd and Golden Hope Plantations Bhd will help start the process for the creation of the world’s largest listed plantation entity, they told Business Times yesterday.

The combined market capitalisation of the entities to be merged under Synergy Drive stands at around RM39 billion now.

The signing of the pact between Synergy Drive and the firms had originally been scheduled for January 15, but was unexpectedly postponed on that day after it ran into some snags.

The postponement came about after the firm’s controlling shareholder PNB, which had originally accepted the agreement in principle, pulled a surprise and called for its review.

PNB owns 39.4 per cent of Sime Darby, 64.7 per cent of Guthrie and 51.8 per cent of Golden Hope.

Synergy Drive is a special purpose vehicle set up by CIMB Investment Bank last November to buy assets and liabilities of the three companies and their listed subsidiaries.

PNB is believed to have returned to the table after a high-level government meeting where PNB was told firmly by the authorities that they wanted the deal concluded.

“The authorities told them in no uncertain terms that this merger was good for the companies, the market and the country,” said one source.

The market has warmly welcomed the merger which is to be helmed by Sime Darby’s group chief executive officer Datuk Ahmad Zubir Murshid.

An eight-member integration committee has been named to oversee the merger.

After the agreement for the merger has been signed with the three firms, Synergy Drive will acquire all the firms’ assets and liabilities and pay for them by issuing redeemable convertible preference shares (RPCs). The next step is for 75 per cent of the shareholders of the firms to reduce them into RM2 entities, only after which the RCP’s will be distributed to shareholders.

The shareholder can then choose to either convert them into shares or receive cash of RM5.25 for each RCP.

Sources said that this is unlikely to be an issue because PNB and other government- linked funds can muster enough votes with the combined stakes they have in all three companies.

Once merged, PNB and its funds will emerge as the biggest shareholders in Synergy Drive with over 45 per cent stake. The Employees Provident Fund will own over 10 per cent and rest will be owned by minority shareholders.


1. Lady's fingers - January 26, 2007

I think you raise several good points here. PNB as is claimed should know where they are headed to – as do all good companies. It is very worrying to think of it as a ‘shell’ that does another’s bidding, especially since it has many fingers in many pies. However, I would think that sometimes in a large enough corporation, it is difficult to get things done (read bureaucracy, protocols) that often affects its direction.

At this juncture, do let me clear the air about an issue you pointed out about inter-conditionality. I’ve been following this merger as many have found it questionable like yourself and believe that the demands for the ‘inter conditionality’ were made by Golden Hope and not PNB’s. I believe that Golden Hope was trying to throw its weight and get more leverage… which a merger of this size will probably create. The question now is whether this will create ripples that will slow down the benefits (or not) that this deal can create. One can only hope that the captain at the helm of this liner can chart a clear direction amidst possible stormy seas.

Charting the direction in itself would be a challenge I feel, as I wouldnt be surprised if the pudgy fingers from the infamous level 4 (or the PM himself) wanted to steer this ship.

As for the value of the deal, my dear elizabeth, this is the market capitalization value of the companies involved, where it was valued at RM31.4 billion when it was suspended and when recently reported was at the market value of RM 39 billion.

2. elizabethwong - January 26, 2007

Interestingly enough, I heard it was everyone but Sime Darby.
Thanks for clearing the air on the last point.

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