Documenti di Didattica
Documenti di Professioni
Documenti di Cultura
June 2008
ACKNOWLEDGMENT
First and foremost, we would like to express our utmost gratitude to the Almighty, God,
for giving us the strength, health and willpower to complete this research. Without His
willingness this research could never be a success.
We are very grateful to the Management and staff of PNB, ASNB and AMB for their
consent and great assistance during our data gathering that consequently allow all the
relevant information to fit into the right places in this research. Our most appreciation
and thanks to the inspiring leader of ASNB, Encik Idris Kechot, the Executive Director
and Head of ASNB for making his time for us to share important information and
insights into the most significant area of concern under this research.
Our heartiest thanks to Professor Madya Dr. M. Fazilah Abdul Samad, whose advice and
guidance meant a lot to us. Your dedication to the students of University of Malaya, as a
supervisor, a lecturer and most importantly as the Director of the Graduate School of
Business is invaluable and is never forgotten.
To our parents, spouse, children, families and friends a million thanks for the
understanding, support and encouragement. The heart-breaking and testing moments
during our absence by their sides are the most valuable challenge that made our bonds
stronger and closer than never before.
EXECUTIVE SUMMARY
Although ASNB has been the market leader in the unit trust industry with the control of
more than 50% of the industrys net asset value (NAV) in terms of the assets under
management, the intensity of competition in the industry has seen the need for ASNB to
grow. In order to strengthen its position in the marketplace and be better able to keep
abreast with the challenges ahead in the light of market liberalization and globalization,
one of the fastest ways to grow is through related mergers and acquisitions (M&A) or
takeover. The main reason underpinning the takeover initiative of ASNB was to grow not
only in size, but also revenues, profitability, productivity, capabilities, skills and expertise
in its business operations and core competencies building.
Amanah Mutual Berhad (AMB), formerly known as Mayban Unit Trusts Berhad
(MUTB), was seen as the best possible suitor for this corporate strategy and that ASNB
hoped to achieve value creation from the synergistic sharing of activities, technology and
core competencies along the value chain leading to economies of scale and scope through
this related takeover and integration of AMB with the company. While, value creation
was expected to be achieved, the post-takeover integration proved to be slower than
expected to enable the company to operationalize and realize the anticipated value.
Therefore, this study aims to investigate not only the issues faced by ASNB in the posttakeover integration process, but also to evaluate the purchase consideration made for the
takeover, the types of financing used, achievement of the motivation for the takeover and
the value created post-takeover on a consolidated account.
In terms of takeover settlement, the findings suggested that ASNB has made a value buy
for AMB at the Net Tangible Asset (NTA) relative to the Discounted Cashflow (DCF)
valuation indicating three (3) times premium of AMBs NTA at the point of settlement in
November 2006. On the back of excessive cash reserves, the takeover was internally
funded via cash settlement. However, the optimal capital structure analysis suggested that
a debt ratio of 20% would provide tax incentives to ASNB for better earnings reflection
under the leveraging principle.
ASNB, to a certain extent has partly achieved its takeover objectives in terms of business
size, broader market penetration and wider market segments, but the slower integration
process of relevant and redundant functional activities resulted in disability of achieving
economies of scale post-takeover. The anticipated synergy value on a consolidated
account was far from reaching the expectation of the management based on the results of
the profitability analysis which indicated the erosions in net profit margin, return on
assets (ROA) and return on equity (ROE) of ASNB in 2007. The lower consolidated
ROE reflected lower shareholders value coming from the takeover. The findings of this
study suggested the need for efficient and effective corrective measures moving forward
so as to realign and redirect resources towards meeting the companys initial motivations
for the takeover.
TABLE OF CONTENTS
CHAPTER 1: INTRODUCTION................................................................................... 1
1.1
DEFINITIONS.............................................................................................................. 3
1.2
1.3
1.4
1.5
2.2
2.2.1
2.2.2
2.2.3
2.2.4
2.3
2.3.1
2.3.2
2.3.3
RESEARCH QUESTIONS........................................................................................ 34
3.2
3.3
METHODOLOGY ..................................................................................................... 36
3.3.1
3.3.2
4.2
4.2.1
4.2.2
4.2.3
4.2.4
4.3
BACKGROUND OF ASNB....................................................................................... 47
4.4
4.5
4.6
4.6.1
4.6.2
4.6.3
4.6.4
4.6.5
5.4
5.5
5.6
5.6.1
5.6.2
5.6.3
7.2
7.2.1
7.2.2
7.2.3
7.2.4
7.2.5
7.3
7.3.1
7.3.2
7.3.3
7.4
7.4.1
8.2
8.2.1
8.2.2
8.2.3
8.2.4
8.2.5
8.3
8.4
LIST OF FIGURES
LIST OF TABLES
LIST OF ABBREVIATIONS
AFS
AMB
AMBBTF
AMBDA
AMBDI
AMBDTF
AMBDY
AMBEBTF
AMBETF
AMBILTF
AMBITF
AMBLTF 2009
AMBLTF 2014
AMBLTF Today
AMBSCTF
AMBUTF
AMBVTF
ASB
ASN
ASNB
AUTB
BLR
CAFM
CAPM
CCB
CCM
CIMB
CTB
DCF
DRB
DRB-Hicom Berhad
EPF
FCFF
FTP
GCEO
HQ
Head Quarters
HSBC
IC
Identification Card
IMA
ISC
IUTA
IUTS
KLCI
M&A
MAA Mutual
MBB
Mcap
Market Capitalization
MER
MGS
Mgt
Management
MIDF
MII
MOU
Memorandum of Understanding
MUTB
MUTMB
NAV
NEP
NTA
OCBC
OTC
Over-the-counter
plc
PMB
PMI
PNB
PwC
PricewaterhouseCoopers
RHB
ROA
Return on Asset
ROE
Return on Equity
SC
Securities Commission
SIF
SUTL
UIC
Units in Circulation
US
United States
USD
UTMCs
UTS
WACC
YPB
LIST OF SYMBOLS
Beta
Unlevered Beta
Levered Beta
Kd
Cost of debt
Ke
Cost of equity
Rd
Rf
RLT
Rm
Return on market
Rp
Risk Premium
RTB
Taxation rate
LIST OF APPENDICES
CHAPTER 1: INTRODUCTION
In the aftermath of the Asian Financial Crisis in 1997, mergers and acquisitions
(M&A) have become a significant effort by governments in Asian countries like
Korea, Japan, Thailand and Malaysia to consolidate and restructure their financial
sectors to cope with the market expectation and increasing number of global
demands. The rapid consolidation of the national banking, insurance and capital
markets is driven by the need to develop strong financial institution and meet the
challenges of global competition. (The Malaysian Insurance Institute (MII) and
Andersen Consulting, 1999).
Over the years, mergers and acquisitions have been used as a tool for firms to
expand their business operations and corporate growths. They are one of the most
important growth options available for firms and it plays a major economic role to
firms in achieving or maintaining their competitive advantage by anticipating and
adjusting to changes.
Langford and Male (2001) identified three means of achieving corporate growth
and development. The growth can be achieved internally where the firm invests
its own capital to set up and operate a new venture. Another means of growth is
through external expansion. This includes merger and acquisition and this
approach is often used where speed is the essence. Corporate growth could also be
achieved through combination of strategy in which it combines elements of
internal and external development through contractual agreement.
In mergers and acquisitions, firms are allowed to acquire new products, skills,
customers and compete in a broader market segments as compared to before.
Ironically, M&A may be one of the easiest ways for firms to obtain substantial
financial returns and penetrate new markets while enjoying other benefits in the
process.
Undeniably, one of the most difficult tasks in an M&A is to find the right partner
and ensure that the new entity would be able to meet the expectations and the
preset objectives. Therefore, from the beginning process of identifying the right
partner up to the continuous implementation of the preset objectives, there are a
lot of activities in M&A that need to be considered in details. These activities
involved intensive, rigorous and critical processes, especially in the three main
stages pre M&A, negotiation process and the post M&A stage. Every activity is
designed in details to ensure the critical objectives in each stage are clearly
defined and addressed.
Hence, due to the complexity and intensity of each M&A process, M&A should
not be treated as a set of unrelated initiatives controlled by different parts of the
management but it should be handled as an integrated program instead. They are
merely a starting point and not the end itself. It must not be viewed in isolation as
it moves things beyond short-term profit making. Managing M&A is a big-scale
effort which deals with the visualization of how the new entity fairs in the future
and also concerns with the present positioning of the firm in the marketplace.
1.1
DEFINITIONS
The term merger and acquisition or M&A has been used synonymously in most
studies and the terminology can vary considerably depending on the text used. A
merger is defined as the combination of two companies of roughly equal size,
pooling their resources together into single business. The shareholders or owners
of both pre-merger companies have a share in the ownership of the merged
business and the top management positions after the merger (Malaysian Investor.
URL: www.min.com.my/eng/html/merger1a.html. Last assessed 16 March 2008).
The definitions used in this study follow that of Fauzias (2003), in which a merger
is defined as a combination of two companies where one loses its corporate
existence and the surviving company acquires both the assets and the liabilities of
the merged company.
A takeover can occur in two ways, through proxy contest and tender offer. The
former occur when an insurgent group attempts to gain controlling seats on the
board of directors while the tender offer occur when a bidder makes an offer
directly to shareholders to buy some or all of the shares of the target firm.
The bidder usually offers a cash price per share to the target company's
shareholders or the bidder's shares to the shareholders of the target company
according to a specified conversion ratio. Either way, the acquiring company
essentially finances the purchase of the target company, buying it outright for its
shareholders.
An asset acquisition occurs when the buyer acquires all or part of the assets and
business from the seller while a stock acquisition involves a transaction where the
buyer acquires the outstanding stocks from the stockholders of the seller.
Despite the formal distinctions, the term merger and acquisition (M&A) is usually
used interchangeably. The bottom line to this idea is not the distinction in the
meaning but more often the net result that actually matters. Ultimately, two
companies that had separated their ownership are now operating under the same
roof, usually to obtain some strategic or financial objectives.
1.2
DEVELOPMENT OF M&A
History has indicated that high number of merger activities reached its peak in
late 1990s which was mainly related to the powerful change forces such as
technological change, economies of scale and economies of scope, globalization
and changes in industrial organization. Today, no firms are considered safe and
untouchable from the possibility of being taken over and merge with another firm.
According to Hitt, Harrison & Ireland (2001), mergers and acquisitions started
massively in 1998 where a large number of companies started to merge with
another company. This phenomenon leads to a record merger of Citibank and
Travelers in US in 1998 with an estimated value of USD 77 billion in value and
another big merger of Exxon and Mobil for an estimated value of USD 79 billion.
When Traveler and Citibank merged to form the financial giant Citigroup, it
signified the beginning of the Megamerger Wave. History has never seen a
consolidation of this size before.
in M&A value has propelled Malaysia to pole position in the region, behind China
and India.
recent
survey
of
M&A
activity
in
Malaysia
conducted
by
PricewaterhouseCoopers (PwC Alert, Issue 57, 2007) revealed that in 2006 alone,
the announced value of M&A was more than doubled to RM 120.4 billion. The
major increase was attributed to the top three deals for the year, including
Synergy Drive Berhads merger, Wilmar Internationals acquisition of PPB Oil
Palms Berhad and MMC Corporation Berhad taking over Malakoff Berhad
private. The table below shows the increasing value of M&A deals from 2004 to
2006.
140
120.4
120
100
80
60
40
51.8
28.5
20
0
2004
2005
2006
1.3
STUDY OBJECTIVE
The primary purpose of merging and acquiring new firms is usually to improve
overall performance (Lubatkin, 1993) by achieving synergy, or the more
commonly described as the 2+2=5 effect (Cartwright and Cooper, 1993;
Hovers, 1971) between two business units that will increase competitive
advantage (Porter, 1985, Weber, 1996).
However, the majority of these studies is not industry specific and is not always
involved in related acquisitions as the companys analyses appear to be chosen
randomly from a range of industries (Delaney and Wamuziri, 2004).
Therefore, the objective of this study is aimed to investigate the basic issues in an
acquisition or a takeover, motivation for the takeover, the types of financing used
and value creation with a focus on the takeover of Amanah Mutual Berhad
(AMB) (formerly known as Mayban Unit Trusts Berhad (MUTB) by Amanah
Saham Nasional Berhad (ASNB).
achievement of the motivation for the takeover, revealing whether or not the
acquisition led to value creation gained from the synergistic sharing of activities,
technology and core competencies along the value chain leading to economies of
scale and scope.
1.4
This study could be of importance to decision makers within ASNB to explore the
factors that contribute to the synergistic value creation in the takeover and
compare the financial achievements of both the bidder, ASNB, and the target,
AMB, pre and post-takeover.
It is very essential for the management of ASNB to realize the effects and
importance of the takeover to their organization. The assessment of the overall
takeover process would bring some salient points on the best practices following
an M&A in the implementation strategy at the advantage of the company and the
best interest of companys shareholders.
The result of the study could also aid decision makers and managers in gauging
various critical factors influencing successful value creation in any takeover bid
and make use of the findings to review implementation strategy and redirect
resources towards achieving the originally anticipated target.
1.5
This study starts off with Chapter Two on Literature Review, focusing on the
need for firms in seeking benefits through M&A as part of their corporate strategy
and shared on the common types of M&A and its categories. This section also
examines the rationales behind any M&A and out of numerous motivations cited
before, three common motives that drive any company to join the M&A
bandwagon mainly imputable to growth and expansion, synergistic factor and
value creation from the M&A exercises. This chapter also emphasizes on the
typical life cycle of an M&A process and reviews on each significant stage
particularly in Pre-M&A, Negotiation Process and Post-M&A stages.
Chapter Three underlines the research methodology applied in this study and
Chapter Four scrutinizes on the industry outlook of unit trusts in Malaysia and
10
also the background of ASNB as the acquirer in this case. The concept of unit
trust is explained to give a clear knowledge on how the mechanism works and
helps in understanding the terms used in later sections. The unit trusts industry in
Malaysia has expanded at the steepest pace since 1994 and in recent years the
upward trend has signaled positive signs for future growth. The factors such as
market trends, growth and demographics contribute to the recent development in
unit trusts. Chapter Four also explicates in details the background of ASNB, the
business model adopted by the company and their product lines.
Chapter Five focuses on the takeover process of AMB by ASNB and understands
the motivations that drive ASNB to initiate the takeover on AMB. The main
reason underpinning the takeover initiative of ASNB is to grow not only in size,
but also revenues, profitability, productivity, capabilities, skills and expertise in
its business operations and core competencies building. This section examines in
details the advantages of the takeover in terms of business expansion factor,
economies of scale and scope, product design and offer, market penetration and
distribution channels factor. The analysis also focuses on the takeover process of
AMB on each critical takeover stage: pre-takeover stage, due diligence process
and post-takeover implementation process.
Chapter Six outlines the valuation of the takeover price based on Indicative
Valuation Method and Discounted Cash Flow Valuation Method. This section
measures the creation of value consequential from the takeover, of whether it
11
brings synergy to ASNB. The key performance ratios are referred to in the
reflection of performance of ASNB before, during and after the takeover. The
calculations also focus on measuring the economies of scale achieved by ASNB
post-takeover. In measuring the economies of scale, comparisons of per unit
production cost based on consolidated basis as against standing alone operations
would be made.
12
2.1
There are numerous types of corporate strategy that take place in todays financial
landscape. The corporate strategy includes M&As, takeovers, divestitures,
alliances, joint ventures, restructuring, minority investments, licensing and
franchising as well as international activities. Generally, M&A activities in either
merger or acquisition can be categorized into three categories that are Horizontal,
Vertical and Conglomerate.
Weston, Mitchell & Mulherin (2004) specified that horizontal deals involved
combination of two firms that operated and competed in the same business
activity. The formation of a larger firm may benefit them on economies of scale
but this kind of combination is heavily regulated by the government to avoid
possible negative competition and monopoly profits creation.
A local example of this type of acquisition is the acquisition of Cycle & Carriage
Malaysia Sendirian Berhad (CCM) by Cycle & Carriage Bintang Berhad (CCB).
CCM was a distributor and retailer of Mitsubishi and Mazda cars while CCB
involved in the assembly, distribution, retail and after sales service of Mercedes
and Mazda (Fauzias, 2003).
13
14
2.2
Numerous reasons have been put forward to justify the drivers behind every
M&A activity. Many cited that the motivation to pursue a merger or acquisition
depends on the companys strategic objective. These include synergies, growth
and expansion, operations efficiency, cost cutting or asset stripping to enhance the
shareholders value.
15
There are various factors and forces influencing companies into M&A, in the light
of changing business environment today. The more dynamic business fields at
present and beyond induces many corporations and industries to look into better
ways of doing business.
Apart from growth strategy facilitated through M&A, the preparation towards
facing future business challenges would be one of the justifications underpinning
M&A. The fundamental role of M&A activities is to enable adjustment to new
challenges and opportunities more effectively. If done efficiently, M&As can
increase revenues and market shares, improve profitability and enhance enterprise
values. (Weston, J. Fred, Weaver, Samuel C. 2001).
While most corporations seek for growth, value creation and synergy through
M&A, many economies view M&A as an attractive tool to overcome excesses in
capacity in a number of industries. The mergers of banking and financial services
institutions for instance facilitate the consolidation and reduction of the
unnecessary and unwanted capacity.
16
2.2.1
Fauzias (2003) signified that there was no general or unifying theory about
mergers and that there maybe numerous reasons for and effects of merger
activity. However, one of the theories that can be regarded as the main
causes behind mergers and takeovers is the shareholders wealth
maximization theory. This theory requires that a merger or acquisition
leads to the increase in profitability for the bidder as well as the target
firm, notably from synergy either from operations, financial or managerial.
17
2.2.2
Synergy
Skills
Scale
Scope
Economies of scale occurs when output increases, reducing the cost per
unit and increasing margins and profitability. In general terms, the larger a
company becomes, the more opportunities there are for reducing costs in
areas such as purchasing, manufacturing, administration, distribution and
marketing. An example of this can be found in the merger of Glaxo
Wellcome plc and SmithKline Beecham plc which formed the worlds
largest pharmaceutical firm, GlaxoSmithKline (GSK). Preventing the
duplication in R&D and some production facilities should allow
management to achieve significant cost savings.
19
2.2.3
Many companies combined for different reasons. Some deals cite more
than just one reason and this is quite difficult to determine what the real
objectives of the deals are. Gaughan (2005) indicated that one of the
common goals for a merger or acquisition is relating to growth and
expansion. Growth refers to two types of growth. A growth could be an
expansion in terms of revenue growth or a profitability growth.
20
to pursue if the company has reached its efficient size, and growing will
make it less efficient.
2.2.4
Evans and Bishop (2001) in their book employed that buyers and sellers
can create a lot of value through merger and acquisition. Both can win
from a transaction and that is the beauty of the deal making. Wise
shareholders and managers do not, however, confine their focus on value
to only M&A.
21
22
But then again, the obvious disagreement to this claim is that the
acquirers sole responsibility is to generate value for its shareholders not
the targets investor. Statistically, this is true but this is only on average.
Therefore, the value creation process in M&A should not only look on the
value creation of acquirers shareholder but also in total and from the
targets point of view as well.
A company must be able to identify their sustainable potentials for longterm value creation. They need to establish a clear picture of the market
and industry that they involved in, the competitive dynamic, patterns of
value creation and likely changes in the industry structure and also the
perception of investors and competitors of the company performance.
23
2.3
M&A PROCESSES
Deloitte & Touche Canada (2008) in one recent survey also indicated that
a typical deal goes through the following process or deal flow. Prior to and
during the deal are where value is identified and agreed while integration
is the phase where this value begins to be delivered.
24
parties involved to focus and establish clear objectives, vision and mission
and determine systematic implementation plans and processes to avoid
another one of many M&A failures.
2.3.1
2.3.1.1
A company needs to know their market value and their place in the
industry before redefine and renew its business directions. A good
grasp of value gap difference between the current value level of
the organization and market expectation, allows the company to
understand the change and market expectation and search for
development efforts to reach the desired objective. Once the
company has decided to choose M&A as the most appropriate type
of partnership, they should set a plan to proceed.
2.3.1.2
25
2.3.1.3
Due Diligence
Due diligence process comes in after the selection process and this
is a stage where the target company is verified from as many
perspectives as possible. When the due diligence team is
established, the team help to confirm the scope of investigation.
There is no standard guidelines for due diligence but there are a
26
2.3.1.4
27
2.3.2
Negotiation Process
Conduct Negotiations
28
2.3.3
There was an old saying if you fail to plan, you plan to fail. This
statement is pertinent to the post merger integration plan whereby
the failure to systematically plan the post M&A integration process
would spells catastrophe to the organization. The post M&A
integration plan is the crucial stage in which it helps to ensure that
the ultimate goals of the M&A activity are met by capitalizing on
positive synergies and streamlining organizations and processes.
The post M&A integration plan or PMI is a value creating process
that when done right should deliver positive results to the whole
organization.
29
2.3.3.1
Vision Setting
30
2.3.3.2
31
2.3.3.3
2.3.3.4
32
2.3.3.5
33
3.1
RESEARCH QUESTIONS
One of the most difficult tasks in this takeover is the integration process and the
challenges that await ASNB in each stage of the takeover. Integrating two
separate entities, ASNB and AMB with different backgrounds, cultures and
systems into a single working unit is never an easy task to complete. It is often
proven to be time consuming and difficult. The process of integration requires
ASNB to cautiously plan the right framework and implementation program in
order to grow further and get the objective fulfilled. Therefore, this study is
planned to address the following research questions;-
34
3.2
RESEARCH LIMITATIONS
The research may touch upon several issues sensitive to the decision makers
within ASNB. The study faced limitations in terms of assessing into information
sensitive to the company, not willingly shared and permitted to be disclosed by
the management.
The confidence level of the existing unitholders and potential investors of AMB
were not examined in this study. However, comments would be made based on
the observation and assessment of the redemption and subscription rates of
AMBs unit trusts products before and after the takeover.
35
3.3
METHODOLOGY
3.3.1
The collection of data is done through the interviews with the senior
management of ASNB and AMB as well as relevant employees involved
in the takeover process. A set of interviews questionnaires is as illustrated
in the Appendix 1.
The interview with the senior management aims at gaining insight into the
rationale and motivation behind the takeover initiatives. The interviews
with the middle and junior managers pertinent to the takeover process
provides understanding of the flow of the process, in-depth analysis
directing towards the decision making and the implementation process
after the takeover across all relevant functional departments in the
organization.
36
Financial reports of both, ASNB and AMB, are obtained from the Heads
of Accounts of the respective company with permission from the Head of
Accounts for the PNB Group. The financial reports comprises statement
of income, balance sheet and statement of cash flow are the main
secondary sources of financial data supporting this research.
3.3.2
Methods of Valuation
Since both companies are not listed, historical accounting data are used as
the bases to project five years forward into the future using DCF valuation
in the assessment of the premium or discount of the takeover value as
against the takeover price paid.
37
4.1
A unit trust fund is a collective investment scheme where money from many
investors is pooled together for collective investments and is invested towards a
specified goal as stated in the investment objective of the fund.
The unit trust industry is governed and regulated by the SC, with the Act and the
Guidelines. The SC is empowered to ensure compliance with the Act and the
Guidelines. The Act and the Guidelines govern the operations and administration
of unit trust funds and protect the interests of unitholders. All parties involved in a
unit trust scheme must comply with the Act and Guidelines including all relevant
laws.
38
A unit trust fund is also governed by a deed of the fund. The deed incorporates the
covenants required by the Act and the Guidelines. The deed is a legal document
that spells out in detail the manner in which the scheme is to be administered, the
valuation and pricing of units, the keeping of proper accounts and records, the
collection and distribution of income, the rights of the unitholders, the duties and
responsibilities of the manager and trustee with regards to the operations of the
scheme, and the protection of unitholders interests.
The appointment of the trustee, the directors and chief executive officer of the
manager, investment committee members, syariah committee members, panel of
advisors and external investment manager of the fund must receive the approval
from SC. The diagram below explains the concept of unit trusts fund.
Unit
Trust
Fund
Trustee
Manager
Invests
39
4.2
However, the
industry faced slow growth for three decades and uncertainty in the regulatory
environment did more to hinder the industrys growth than to support its
development. The pace of growth picked up in the 1990s registering its fastest
growth in both the number of new companies established and assets under
management.
4.2.1
The Market
40
been the market leader in terms of assets under management that stands at
more than 50% (at more than RM75 billion) of total Net Asset Values
(NAV) of the Malaysian unit trusts industry, worth about RM175.4 billion
in 2007. The industry details encompassing the size of the industry in
terms of number of funds available, Approved Fund Size (AFS), total
Units in Circulation (UIC), Net Asset Value (NAV) and market
capitalization (Mcap) comparative to the Kuala Lumpur Composite Index
(KLCI) of Bursa Malaysia are as illustrated in Table 1.0 below.
4.2.2
Market Growth
In 2007, the local unit trusts industry was expanding at the steepest pace
since 1994, reflected by the growth of its key indicators, namely the AFS,
UIC and NAV. AFS grew 37.9% or an extra 119.4 billion units to 434.5
41
billion units from 2006. UIC, on the other hand increased 41.3% or 62.4
billion units to 213.4 billion during the same period. NAV recorded the
fastest pace among the three indicators, up 47.6% or RM56.5 billion to
RM175.4 billion from RM118.9 billion in 2006.
illustrated the upward trend of the industry for the past few years.
Source: Lipper
The rapid growth was mostly supported by the record number of new
funds launched of 117 in 2007 compared with only 67 new funds in 2006.
The government allowance of larger percentage of total assets for offshore
investments from 30% to 50% was also a boost to the supply side industry.
This move provided more rooms for UTMCs to diversify their product
range to better serve investors investment styles.
42
Source: Lipper
4.2.3
Market Trends
The indication of trends in which fund types are gaining popularity with
investors can be seen in the new funds launched during a particular year.
Figure 3.0 showcases the types of unit trusts launched in 2007. In 2007,
equity offshore was the most popular category of funds being launched,
with a total of 42 funds. The sudden interest in launching global and
offshore funds was due to Bank Negaras decision to relax the institutional
43
Source: Lipper
44
Through the
governments Budget 2008, a special tax rebate has been introduced for
both Islamic funds and Islamic UTMCs.
4.2.4
Market Demographics
The offerings of unit trust products to one market segment from another
must differ in accordance with the investment objective and risk tolerance
of consumers in each segment, which varies with age groups. Analysis of
the Malaysian population (translated into graphical illustration in Figure
4.0) indicates that the working group, aged between 25 and 54 years old
make up the majority at about 39.3% of the population and is growing at
an average of 2% to 3% per annum. The aging population is seeing the
increase in the retiring population (retiree group) at an average of 4% to
5% growth per annum.
45
10.78%
11.74%
12.90%
39.32%
40.56%
41.52%
42.32%
43.11%
27.52%
25.94%
28.55%
28.28%
27.92%
14.57%
21.78%
20.38%
18.81%
17.26%
16.38%
2007E
2010E
2013E
2016E
2020E
Increase in working
population means
that economy needs
more saving and
investment
0%
0-9
10-24
25 - 54
55 +
Source: ASNB
It is obvious that both, the working group and the retiree group, are
growing in size, while the student group (aged between 10 and 24 years
old) and the minors (aged 9 and below) are reducing in size moving
forward. The investment decision for the student and minor groups would
normally be the parents who are in the working group. The investment
needs of the four groups or segments differ. The eligible investors to
UTMCs would be the working population and the retirees.
46
4.3
BACKGROUND OF ASNB
Over 30 years in existence, ASNB has been a successful special vehicle of the
government to pool funds from the Malaysian individuals through its unit trust
products. These pooled funds are being mobilized into performing corporate
sectors through investments into sound private and public listed companies.
47
The investment model and approach adopted by ASNB have been able to
cultivate savings habits among Malaysian especially Bumiputera, while at the
same time educating society at large of the importance of long term investments
for the future.
ASNB, Malaysia has seen improvements in the living standard of the Bumiputera
across the country.
4.4
ASNB, in line with the mission of PNB, strives to enhance the economic wealth
of Malaysians, in particular, the Bumiputera community and simultaneously
contributes towards the growth and prosperity of the nation for the benefit of the
society as a whole.
The company envisioned to be a premier unit trust organization of the world class,
providing distinctive services to its unitholders, customers and potential investors.
The company inculcates a set of values that reflect the rich tradition and
48
4.5
The product offerings of ASNB are only catered for the retail unit trust segment
that is the public at large. During the early years since its inception, ASNB only
opened unit trust subscription for the Bumiputera public. This was in tandem
with its original objective of set up that is the mobilization of funds and creation
of equitable wealth distribution among the Bumiputera through participation in
unit trusts. The mass customization, production and advertising of the unit trust
products of ASNB cannot be sold to the institutional or corporate market
segments.
The company offers eight unit trust products, which are categorized into 10 funds
consisting four fix-priced funds (priced at RM1.00 a unit fixed) and six variablepriced funds (price varies with the performance of Net Asset Value of each fund).
ASNB until today has continued to maintain its leading position in the unit trust
management industry, comprises 416 unit trust funds, controlling more than 40%
of the total units in circulation (UIC) of about RM151 billion. The product
information details are as presented in Table 2.
49
Funds
Launched
Financial
Approved
UIC as at
Minimum
Date
Year End
Fund Size
31/05/2007
Initial
(units)
(units)
Investment*
Fixed-priced Funds
ASB
2 Jan., 1990
ASW 2020
28
1996
ASM
ASD
31 Dec.
Unlimited
53.52 billion
10 units
Aug., 31 Aug.
7.35 billion
5.12 billion
100 units
20
2000
Apr., 31 Mar.
7.70 billion
5.28 billion
100 units
20
2001
Apr., 30 Jun.
3.00 billion
1.58 billion
100 units
Apr., 31 Dec.
2.50 billion
1.49 billion
10 units
2.50 billion
256.81
million
1,000 units
Variable-priced Funds
ASN
20
1981
ASN2
9 Jun., 1999
ASN3
1.00 billion
90.72 million
100 units
ASGPendidikan
17
2001
Mar., 31 Mar.
100 units
ASGKesihatan
17
2001
Mar., 31 Mar.
ASGPersaraan
17
2001
Mar., 31 Mar.
1.0
bil. 31.88 million
units
collective
24.86 million
for all the
three funds
under the 24.90 million
ASG
umbrella
30 Jun.
100 units
100 units
50
4.6
4.6.1
Distribution Channel
ASNB operates through physical offices of its own outlets and the
networks of its four Agents, enabling performance of over-the-counter
(OTC) transactions, communications and provision of services.
The
51
Agents
Total Branches
MBB
72
394
CIMB
69
352
RHB
26
183
PMB
57
682
Total
224
1,611
Sandakan
Kota Kinabalu
Alor Star
Kuala
Terengganu
Miri
Butterworth
Sibu
Kuching
Tawau
Ipoh
Shah Alam
Sri Aman
Kuantan
Seremban
Johor Bahru
52
The major portions of sales to the company are generated via OTC
transactions of the agency networks and its own service outlets. A small
proportion of sales are sought through personalized services of its sales
executives, especially those unit trust purchases by customers and
prospects coming from the Employee Provident Funds (EPF) savings. At
present, ASNB has about less than 40 sales personnel providing
personalized service to customers across the nation.
4.6.2
Distribution Fee
53
4.6.3
Sales Incentive
Different from the sales people of other UTMCs, the sales personnel of
ASNB receive a fixed monthly salary commensurate with their seniority
and experience levels. Although they do not receive sales commissions on
top of the fixed monthly pay, the high flyers among the sales people will
receive performance bonuses and other incentives (for instance overseas
trips) significant enough to motivate and differentiate them from the nonperformer.
4.6.4
The sources of income to ASNB from the unit trust sales and assets
management business are coming from management fees (about 97% to
98%), initial service charges (ISC) (about 1.0% to 1.6%) and other fee
income (about 1.4% to 1.8%).
54
Fund Type
Sales Charge
Management Fees
(ISC)
Balanced
5.00% - 6.50%
Around 1.50%
Bond
0.00% - 6.50%
0.40% - 1.50%
Equity
1.65% - 6.50%
1.50% - 1.80%
Guaranteed
0.00% - 2.04%
0.75% - 1.50%
Index
0.75% - 6.50%
1.00% - 1.50%
Money Market
0.00% - 1.00%
0.38% - 1.00%
Islamic
0.00% - 6.95%
0.30% - 1.80%
4.6.5
55
5.1
Firms must have a business growth strategy. (Bendaniel and Rosenbloom, 1998)
The main reason underpinning the takeover initiative of ASNB was to grow not
only in size, but also revenues, profitability, productivity, capabilities, skills and
expertise in its business operations and core competencies building.
The
motivations leading to ASNB jumping into the M&A and takeover bandwagon
are as follows:-
5.1.1
Business Expansion
There are various reasons for an organization looking towards M&A and
takeover when strategizing for corporate growth. Organic growth through
internal accumulation of assets and reserves takes longer time when
compared with growing through M&A. The major objective for the lateral
or horizontal integration and takeover of AMB by ASNB is to expand and
grow the existing size, assets and business of the company.
56
5.1.2
forward, ASNB cannot strictly depend only on the retail market segment
to ensure survival long into the future. The company must strike a balance
between meeting the social objective and its commercial business needs.
57
would also enable ASNB to better position itself in the unit trust industry
to compete with the increasingly intense competition coming from the
market rivals, especially in the light of market liberalization and
globalization.
5.1.3
While the consumers are pampered with and spoilt for selections over the
larger spreads of financial products, the share for sales volume is getting
smaller for market players and profit margin is thinning due to increasing
competition.
takeover strategy seems fit for ASNB to move quickly in terms of product
offerings and design, overcoming the product gap of the company.
58
5.1.4
enhanced cost efficiencies of the new business and it takes the form of
revenue enhancement and cost savings.
The distribution gap analysis of the company clearly reveals the need for
more than just the physical banking agency networks performing the OTC
transactions and functioning merely as collection centers with no
motivations to adopt some pushing strategy to boost sales for ASNB.
Figure 11 illustrates the distribution channels of the mutual fund industry
59
world wide, and the blue-colored balloon depicts the channels in existence
for ASNB.
Phone
Service
Centers
Mail
Direct/ Retail
Channel
Non-personal accounts
held by trusts, corporations,
financial institutions,
endowments,
nonprofit businesses,
and other organizations
12%
Institutional
Channels
Supermarket
Channel
13%
5%
DISTRIBUTION
CHANNELS
Securities
firms
16%
Employers sponsoring
defined contribution plans
select a limited number of
funds for participants
Banks
55%
Retirement
Plan Channel
Advice
Channel
Financial Advisers
Insurance
Agencies
Financial
Planning
firms
International industry
trend
5.1.5
Analysis of the competitive gap indicated that the strength of ASNB lies
with its fix-priced or capital-protected unit trust products. The consistent
competitive annual payouts to unitholders are pulling crowds to ASNB
whenever new additional units in the fix-priced segment are opened to the
public.
60
5.2
The identification and realization of the needs to grow in size, expand business
opportunities, enhance and maintain competitiveness of ASNB had initiated the
company to look into M&A as part of its corporate growth strategy.
The
importance for ASNB to grow was shared among the management and boards,
which everyone agreed that size matter in order to better able to weather rapid
61
reactionary basis to ward violent fluctuation in revenues and profits over the long
term.
This effort was also in line with the objective and initiative of its principal holding
company, Permodalan Nasional Berhad, PNB, to restructure many of the groups
business activities in various industries through its subsidiaries, including the unit
trust business.
The initialization of ASNBs need to grow via M&A has called for the screening
for, evaluation and selection of potential targets to arrive at the possibly the most
suitable suitor for the company. ASNB is of the view that the corporate strategy
was very important to the company that everyone relevant in the strategic
planning should be involved in the process. The company thus decided to
undertake a crucial analysis comprises the screening, evaluation and selection
processes in-house.
5.2.1
62
The company was looking into a lateral or horizontal integration where the
consolidation of similar functions along the business value chain activities
would enhance efficiency and productivity of the company. The screening
for the potential suitor for ASNB started with the scanning of a number of
local unit trust management companies (UTMCs), carrying out similar
businesses within PNB group of companies.
63
5.2.2
Evaluation Of Target
The evaluation of the two targets started with comparative analysis of the
targets as against ASNB, outweighing the advantages of the takeover and
assessing how each target could actually complement and contribute to the
benefits of ASNB as whole post takeover. The results and findings of the
analysis, including relevant recommendations based on the findings were
later presented to the Board of Directors of both, PNB and ASNB for
direction and approval.
5.2.2.1
Comparative Analysis
Then,
64
General
Information
ASNB
AMB
AUTB
10
17
No. of funds
Fund Types
Balance Growth,
and Income.
Islamic,
Balance, Growth,
Islamic,
Small-cap,
Money
Market.
UIC (unit)
NAV
Fund Manager
51.54 billion
4.78 billion
0.516 billion
RM 51.3 billion
RM 2.57 billion
RM 0.281 billion
PNB
SSCM
Hwang-DBS Asset
Management
Market Share
UIC: 39.2%
UIC: 3.6%
UIC: 0.4%
NAV: 53.6%
NAV: 2.7%
NAV: 0.3%
65
Business Model
ASNB
AMB
AUTB
Distribution
Channel
and
agents,
sales International
at
Unit
branches
own
offices
and
agents
Channel Size
Close
to
branches
OCBC
&
Standard Chartered
Distribution Fee
on
sales Based
on
sales
performance
ranging
Sales Incentive
Nil
Sales
executives Individual
receive
sales receive
Fee Breakdown
Gross
agents
incentives
on
individual agents
performance
1.2% ISC,
58% ISC,
30% ISC,
1.8% others
2% others
10% others
45%
13%
EBITDA 32%
sales
Margin
Staff Size
382
42
36
135 million
114 million
14 million
RM134 million
RM61 million
RM7.8 million
66
Figure 12: Equity and Operational Structure of ASNB, AMB and AUTB
PNB
MBB
MIDF
ASNB
AMB
AUTB
10 unit
trusts
products.
17 unit
trusts
products.
6 unit trusts
products.
Distribution Channels
ASNB
Branches
Distribution Channels
Institutional
Agents
MBB,
CIMB,
RHB, PMB
Distribution Channels
MBB
Branches and
Finance
Executives
Individual
Agents
Bank Islam,
IUTA
Source: PNB
5.2.2.2
(i)
Both AMB and AUTB acted as distributors to third party unit trust
products apart from producing and distributing their own in-house
unit trust products. AMB for instance, had an agreement with
Pheim Unit Trusts Berhad and Hwang DBS Unit Trusts Berhad to
67
While
ASNB is designing and producing its own unit trusts products, the
collaboration with AMB or AUTB provides ground for ready
massive distribution of companys products to mass market. The
specialization also enables cross-selling of products between the
ready clientele base of AMB or AUTB and ASNB. ASNB would
not only sell its products through physical offices of agents but
also, through the individual unit trust agents (IUTA) of AMB or
AUTB.
(ii)
Apart from the other three agents, CIMB, RHB and PMB, the unit
trusts products of ASNB were very much dependent on the MBB
branch offices for mass sales and distributions. While MBB was
responsible for the sales, marketing and distributions activities for
68
Better personalized
69
(iii)
(iv)
(v)
70
(vi)
71
Management
Unit Trust Fund
Service Fee
Operating Fees
Expense Ratio
(MER)
ASB
0.34%
0.36%
ASW
0.34%
0.42%
ASM
1.02%
1.02%
ASD
1.08%
1.93%
ASN
5% - 8%
0.67%
0.68%
ASN2
3% - 8%
0.51%
0.60%
ASN3
3% - 8%
1.52%
1.66%
ASG- Education
3% - 8%
N/A
N/A
ASG Health
3% - 8%
N/A
N/A
ASG Retirement
3% - 8%
N/A
N/A
Average as at 2004
The ASB unit trusts fund represents nearly 82% of NAV of ASNB
unit trusts funds. There is no service activation fees charged for
any subscription and the management expense ratio (MER) is very
competitive, indicating the least frictions or transaction costs of
owning units of ASB in the market. Since ASB does not have any
service activation fees, the total transaction costs for 2004
comprised only 0.36% of the MER, in which 0.34% mainly came
from the management fees.
72
Magazine in February 2004, MER for ASB was much lower than
the average of MER for unit trusts products in the United States
whereby the average was 1.5%.
In order for ASNB to be more competitively focus in the variablepriced products segment, exploitation of economies of scale as
what they have managed to achieve in the fix-priced products
segment is very important. The management foresees that this
takeover would be able to increase the NAV for the variable-priced
unit trusts products of ASNB from RM 1.7 billion to RM 4.5
billion.
73
(vii)
74
75
(ix)
(x)
This takeover would provide a better platform for ASNB and PNB
group to collaborate with MBB for any future plan to launch
international unit trusts funds through MBBs wider networks
abroad. At the moment, PNB markets its international unit trust
products through Singapore Unit Trusts Limited (SUTL) while
MBB operates its branches in Singapore, Brunei, China, Hong
Kong, Vietnam, United Kingdom, United States, Cambodia and
Bahrain. Therefore, in view of the broader international exposure
76
5.2.2.3
(i)
MBB
On average, for the last five years to 2005 (prior to the takeover),
AMB had been contributing about RM10.74 million after tax
profits to MBB.
77
It was also projected that MBB could generate 15% new unit trusts
sales for the variable-priced products segment of ASNB for the
next five years from 2005 on an annual basis post takeover. This
would lead to NAV increase in the variable-priced products
segment from RM4.5 billion in 2005 to RM9.0 billion in 2010.
78
(ii)
MIDF
79
5.2.3
Selection Of Target
The comparative analysis of the two targets as against ASNB as laid out in
Table 5 and Table 6 indicated an obvious complementary advantage by
AMB relative to AUTB to ASNB.
5.3
The takeover of AMB by ASNB started on October 27, 2005 with the signing of
the Memorandum of Understanding between ASNB and MBB, the principal
holding company of the former MUTB. The takeover initiative was based on a
negotiation basis between both entities and after going through a number of
80
important processes and procedures in compliance with the M&A best practices,
the takeover effort was finally completed on November 30, 2006 and MUTBs
name was changed to AMB effectively on April 2007.
AMB is responsible to carry out and conduct its unit trust business and manage
the fund in a proper and diligent manner in accordance with the rules and
regulations. AMB observed high standard of integrity and fair dealing in
managing the funds to the best and exclusive interest of the unitholders. AMB
also ensure that the investments and other assets of the funds are adequately
protected and properly segregated.
81
5.3.1
Business Expansion
The combined entity would have the largest unit trust assets under
management, worth estimated amounting to more than a total of RM64.5
billion NAV post-takeover in December 2006. An instant growth in the
size of assets under management as compared to the slower growth
organically, which creates a greater dominance of the market as a
competitive edge.
5.3.2
The market reach of AMB is very much wider than ASNB. The unit trust
products of AMB can be offered to various market segments from retail
public, institutions, corporations, as well as foreign retailers and
wholesalers.
82
penetration would also enable ASNB to better position itself in the unit
trust industry to compete with the increasingly intense competition coming
from the market rivals.
5.3.3
In tandem with the wider market reach, a better variety of unit trust
product offers could be developed and designed. The product offers could
be customized and tailored to suit the needs and demands in accordance
with each market segment.
In order to keep abreast with the market evolution, with takeover of AMB,
it is hoped that the enlarged entity would be better able to develop, design
and offer more product choices to satisfy the increasingly affluent
investors that demand for sophisticated investment products with better
promising returns at tolerable risk exposure.
83
5.3.4
It is also hoped that synergistic value could be achieved through the full
exploitation of complementary expertise, technologies, distribution
networks and human capabilities from the merged entities. Synergy is the
magic force that allows for enhanced cost efficiencies of the new business
and it takes the form of revenue enhancement and cost savings. The
synergy effect of this related integration is expected to lead to economies
of scope derived from the operational efficiency coming from efficient
combination of similar operational functions and distribution channels,
saving costs and resources all along the value chains.
5.3.5
The strength of ASNB lies with its fix-priced or capital-protected unit trust
products, while AMB has penetration across wider market segments. The
integration of the two companies provides opportunity for the enlarged
entity to build better image and brand reputation across products and
market segments.
84
5.4
The following Table 8 detailed the chronology of dates for the takeover process
on AMB:
Table 8: Takeover Timeline
No.
Events
Date
27 Oct, 2005
25 May, 2006
12 April, 2007
30 April, 2007
30 April, 2007
30 June, 2007
85
5.5
The due diligence exercise was conducted by the relevant key persons in ASNB
and PNB, which mainly consists of ASNB personnel and fund managers from
PNB. The team came from inter-related functional departments, of various
backgrounds, skills, experience and expertise in all the relevant matters in regards
to the due diligence exercise.
In order to ensure that the best practices under M&A and takeover conduct are in
accordance with the Rules and Regulations, Messrs. PricewaterhouseCoopers
(PwC) was appointed as the consultant and advisor for this initiative.
The due diligence exercise started in May 2006 with a focus on operational
functions of AMB. The exercise covered areas such as Finance, Operations,
Marketing and Distribution Network, Products Development, Fund Management,
Human Resources and Information Technology.
In the operations area, the objective of the due diligence was to find out the major
operational activities carried out by AMB and to analyze the future need of ASNB
workforce in lieu of the operations involved. The exercise also aimed to identify
the necessary activities that need to be retained and do away with redundancies
that are not related to the unit trust operations. In this way, the operations of the
86
two entities can be integrated smoothly and this could help in cost reduction in the
new entity.
The operations due diligence covered processes such as the front-end counter
transaction, electronic unit trust transaction, back-office operations, staff strength
in regards to the transaction volume and data size, integrated unit trust system,
product creation and documentation procedure and system.
The exercise also covered the marketing or distribution and agency network of
AMB. The exercises areas of concern include branding, commission rate
structure and training to agents. The objective is to determine whether or not
ASNB would need to re-brand the seventeen existing products of AMB and to
ensure the regulatory requirement for such re-branding activity. The exercise also
looked for any overlapping in promotional activities and integrates the
promotional activity of AMBs existing products to ASNBs products.
This was in line with the product development assessment, which was to identify
AMBs product line that fits into a few fund categories such as the growth fund,
growth and income fund, index fund, small cap fund, capital guaranteed fund and
Islamic fund. By doing this, they could identify the products that are competing
products to those of ASNB and design a product development plan that could
integrate all the competing products. This could avoid any confusion to the
customer on the products feature from both ASNB and AMB.
87
Other areas of concern in the due diligence exercise in terms of the product
development assessment was to secure the unitholders database in order to
identify the unitholders who would be eligible for the cooling off rights. Besides
that, the exercise also concerned that SCs Guidelines on translated documents are
adhered to and maintain the register of those unitholders who opted for payment
of income distribution.
The exercise also reviewed the human resource management in which they had
assessed the staffing of AMB personnel and proposed to ASNB to absorb the
existing executive level staff and redeploy the clerical staff as ASNB already have
excess clerical staff. They also proposed that AMBs terms of employment to be
changed to harmonize with the terms of employment of ASNB post acquisition.
Besides that, the team also examined the financial implication of the acquisition
on ASNB and analyzed the financial performance of AMB and impact of rules
and regulation on the acquisition.
5.6
5.6.1
Many acquisitions look great on papers. Yet no matter how attractive the
opportunity, value is not created until after acquisition, when capabilities
88
In the case of ASNB, after the lengthy process of due diligence that ended
with the full cash settlement of the purchase price in February 2007, the
company planned to integrate functional departments which deem to be
redundant and that these activities could be done on a sharing basis
(shared services). The functions which were planned to be integrated are
as follows:
89
5.6.1.1 Operations
However, during the due diligence process, it was found that the
integration of AMBs operations with ASNBs operation under one
department do not seem to be feasible on the back of the different
systems supporting the operational activities of the two companies.
In addition, the different features of the unit products of the two, of
which AMBs forward pricing products and ASNBs historical
pricing products require different set of activities and processes to
be carried out.
90
Thus two
5.6.1.2 Systems
91
92
93
The existing eight (8) unit trust products or 10 funds of ASNB are
currently managed by PNB in line with the Investment
Management Agreement (IMA) between the two companies. The
fund management activities are thus carried out in-house within the
PNB group. AMB, on the other hand, outsourced its funds
management activities to three external fund managers, namely,
Hwang-DBS Investment Management Sendirian Berhad, UOBOSK
Asset
Management
Sendirian
Berhad
and
Mayban
94
95
This has also given the upper hand to ASNB to have full control
over the introduction and launching of its unit trusts products. In
addition, competitive advantage could be enhanced as resources
are shared leading to cost savings and economies of scale in the
production of organizations unit trust products.
With the takeover, the combined and enlarged entity has a total 27
unit trust products that can be offered to the Malaysian public. The
main benefit coming from this integration, post-takeover, would be
the broader market segment available to ASNB group for future
target. While previously, ASNB was only confined to the retail
market segment, with AMB in the group, ASNB is now able to
generate sales from the institutional market segment.
96
5.6.2
The rest of the funds are Conventional Unit Trust Funds, namely the AMB
Unit Trust Fund (AMBUTF), AMB Balanced Trust Fund (AMBBTF),
AMB Income Trust Fund (AMBITF), AMB Index-Linked Trust Fund
(AMBILTF), AMB Ethical Trust Fund (AMBETF), AMB Value Trust
Fund (AMBVTF), AMB Enhanced Bond Trust Fund (AMBEBTF), AMB
SmallCap Trust Fund (AMBSCTF), AMB Dana Fitrah 1 (Capital
Protected), AMB Lifestyle Trust Fund Today (AMBLTF Today), AMB
Lifestyle Trust Fund 2009 (AMBLTF 2009), AMB Lifestyle Trust Fund
2014 (AMBLTF 2014), AMB Dividend Trust Fund (AMBDTF), AMB iTrust Fund, AMB First Capital Guaranteed Trust Fund and AMB Second
Capital Guaranteed Trust Fund.
97
98
Funds
Investor Profile
Launched
Date
Approved
Fund Size
(units)
UIC as at
17/08/2007
(units)
Minimum
Initial
Investment*
Growth Fund
For investor with long
term investment interest
and capital growth of
their investment. For
investors who are seeking
investment in larger blue
chips and growth stocks.
For investor who are
2. AMBSCTF
seeking long term capital
growth through
investment in small to
medium sized companies
and willing to accept
higher level of risk in
order to obtain higher
growth of their capital.
For investors who are
3. AMBVTF
willing to accept risks for
returns presented by the
stock market and want to
capitalize on the value
investment approach
when investing in equity
market.
For investor who is
4. AMBDY
looking for investments
in a diversified portfolio
of assets that conform to
the Syariah Principles. It
has a medium to long
term investment horizon
of two years and above.
5.
AMBLTF For investor who seeks
for an investment solution
2009 / 2014
for five years to ten years
or more and seek returns
from professionally
managed fund that is well
diversified across various
asset classes.
1. AMBUTF
Mar
1992
367,701,837
RM 1,000
Mar
2004
Jan
2003
RM 500
Nov
2000
179,147,100
RM 500
Dec
2004
RM 500
99
Funds
Investor Profile
Launched
Date
Approved
Fund Size
(units)
UIC as at
17/08/2007
(units)
Minimum
Initial
Investment*
7. AMBEBTF
8. AMBETF
9. AMBDTF
10. AMBDI
Sept
1994
RM 1,000
May
2003
RM 1,000
Jan
2003
RM 500
June
2006
RM 500
Sept
2002
RM 500
100
Funds
Investor Profile
Launched
Date
Approved
Fund Size
(units)
UIC as at
17/08/2007
(units)
Minimum
Initial
Investment*
Income Fund
11. AMBDA
Apr
2004
27, 1 billion
218,536,200
RM 1,000
RM 1,000
RM 500
RM 500
appreciation in value
through investments in
debt instruments
permissible under Syariah
Principles.
12. AMBITF
June
1996
13.
Today
defensive investment
Dec
2004
Index Fund
14.AMBILTF
May
2002
101
5.6.3
102
AMB and ASNB will act as the producer for the all the funds and the
distribution channels will distribute the products accordingly. The
following diagram is the new organizational structure of the new entity.
PNB
ASNB
Producer
AMB
Distribution Channels
ASNB
Branches
Institutional
Agents
MBB, CIMB
PMB
RHB Bank
MBB
Branches and
Financial
Executives
Individual
Agents
Distributor
103
6.1
In any M&A or takeover deal, putting the right price to the target is a paramount
process. In order to arrive at the right or fair price, knowing what an asset is
worth and what determines that value is prerequisite for intelligent decisionmaking (Damodaran, A., 2006, pg.1). At the preliminary stage of the AMB
takeover by ASNB, the management valued AMB based on an indicative price by
comparing some similar M&A deals that took place a few years prior to its
initiative and applying a somewhat similar rule to the deal. While, ASNB applied
indicative valuation approach to arrive at the fair consideration to the deal, this
study tends to compare managements valuation with DCF valuation, a popularly
used in investment evaluation technique to determine the fair price for a private
company.
6.1.1
104
AMB
For Financial Year Ending June 30,
Net Tangible Assets (NTA)
2005
(RM mil)
24.56
10.14
25.27
42.73
43.98
Minimum value
24.56
Maximum value
43.98
The assumption for the attachment of 1.74 times premium to either NTA
or management fee income received by ASNB was based on a fair
premium justifiable for companies in the mutual funds industry. The
premium was an indication of the potential income expected to be
generated by the target company from its business transactions in future.
The 1.74 times premium was adopted based on several M&A deals done
earlier in the range of 1.5 times to 1.8 times premium attached to NTA.
For instance the deal between MAA Mutual Berhad (MAA Mutual), the
bidder and MBF Unit Trust Management Berhad (MUTMB), the target
was done at 1.5 times NTA; and the deals between CIMB Berhad and
Commerce Asset-Holding Berhads 70% stake in both Commerce Asset
105
The takeover price for AMB was estimated to be in the range of RM24.6
million, at the minimum price and RM44.0 million, at the maximum price
based on the indicative valuation as illustrated in Table 10. The indicative
takeover prices proposed were just a preliminary indication to the
management and Board of Directors to facilitate decision making during
initial evaluation stage when it was started in December 2005.
The ultimate motive for the acquisition to ASNB was to have a platform
for transformation and growth in the variable-priced segment of its mutual
106
6.1.2
With a going concern assumption for the business of AMB, the company
was valued using the cost of capital approach by discounting the free cash
flow to the firm (FCFF) at the weighted average cost of capital (WACC).
The determination of firms value of the operating assets in this
Discounted Cash Flow (DCF) model would depend on assumptions made
about its future growth. The value of firm derived from the value of
operating assets of that company on a going concern assumption can be
written as the present value of the expected cash flows to the firm as
follows:
107
t=
Value of firm =
t=1
Where,
FCFFt
(1+WACC)t
In an assumption that AMB reaches steady state after n years and starts
growing at a stable growth rate gn after that, the value of the firm can be
written as follows:
t=1
FCFFt
(1+WACC)t
FCFFn+1/(WACC- gn)]
(1+WACC)n
WACC =
Where,
x (Kd )
Kd
cost of debt,
Ke
cost of equity
E
(D+E)
x (Ke)
108
Kd
Where,
Rd(1-tax)
Rd
Tax
6.75%
11.55%
The cost of debt for AMB is estimated based on BLR plus 480 basis points
of risk premium at an assumed A2 corporate rating (in line with firms in
similar business profile). This is based on an assumption of an average
credit risk spread of about 60 basis points from one investment grade to
another for a company bond rating in the private debt securities market.
(Refer to Appendix 2).
11.55% x (1 0.28)
Kd
8.32%
109
Where,
Rf + (Rm Rf)
Rf
beta of AMB
Rm
return on market
The risk free rate of return, Rf, is based on the annual historical average
rate of return on 5-year Malaysian Government Securities (MGS) from
2001 to 2005 of 3.59% (refer to Appendix 3 for details) or
Rf = 3.59%
Rm = 7.32%
110
Since the target company, AMB is a private company and that the beta
numbers are not published by any data or information provider such as
Bloomberg, Reuters or Bernama.
Rp = a + (Rm)
Where,
Cov[Rp,Rm]
Var[Rm]
Coefficients
0.0136
0.6822
Intercept
Beta
Standard
Error
0.1632
1.1703
t Stat
0.0831
0.5829
P-value
0.9414
0.6189
Rp = 0.0136 + 0.6822(Rm),
= 0.68
111
Debt ratio
D/E ratio
Beta
Cost of equity
Interest
Cost of Capital
0%
0.00%
0.68
9.84%
4.00%
9.84%
10%
11.11%
0.74
10.33%
5.00%
9.66%
20%
25.00%
0.80
10.96%
6.00%
9.63%
30%
42.86%
0.89
11.76%
7.00%
9.74%
40%
66.67%
1.01
12.83%
8.00%
10.00%
50%
100.00%
1.17
14.33%
9.00%
10.40%
60%
150.00%
1.42
16.57%
10.00%
10.94%
70%
233.33%
1.83
20.31%
11.00%
11.63%
80%
400.00%
2.64
27.80%
12.00%
12.46%
90%
900.00%
5.10
50.25%
13.00%
13.44%
The optimal capital structure for the takeover financing stands at 25% debt
to equity ratio, which is 20% debt and 80% equity composition.
112
Rf
3.59%
Rp
9.15%
u [1 + (1 t) D/E]
0.80
Rf + L(Rm Rf)
6.60%
0.07% + 6.22%
6.29%
113
6.48%
Rf + L (1.74Rm Rf)
10.96%
Ke
CAPM
6.60%
6.29%
6.48%
10.96%
Average Ke
7.58%
114
Calculation of WACC:
WACC =
D
(D+E)
x (Kd )
E
(D+E)
WACC =
20
(100)
x (8.32% )
80
(100)
x (Ke)
x (10.96%)
WACC = 10.43%
DCF Assumptions:
Cost of Debt (Kd )
8.32%
10.96%
0.80
Debt/Equity ratio
20/80
10.43%
Tax rate, t
28.00%
0.01%
The net present value of the operating assets of AMB based on DCF
valuation is as follows:
115
The valuation of AMB based on DCF value of the operating assets of the
company, with a going concern assumption for the business, reflects an
enterprise value of RM92.7 million.
The pro-forma income statement and balance sheet of AMB for five years
to 2010 are as presented in the Appendix 5 and Appendix 6, respectively.
116
117
6.1.3
The DCF value is three (3) times of the companys NTA as at November
30, 2006 of RM34.6 million, as what being paid by ASNB for the
consideration of the takeover. The premium value reflects the unit trust
funds value on a going concern business. The takeover price based on
NTA of RM34.6 million or RM8.67 a share was a value investment to
ASNB relative to the DCF valuation of RM92.7 million. ASNB has thus
paid a discount of 62.7% or RM58.1 million from the estimated DCF
value of AMB of about RM92.7 million.
6.2
In many M&A and takeover deals, measuring the creation of value as the outcome
of the initiatives would be one painstaking activity and involves a lot of
subjectivity. Patrick A. Gaughan in his book, Mergers, What Can Go Wrong and
How to Prevent It (2005) agreed that successes depend on the defining criteria for
the success that had been set or agreed on.
118
takeover is also analyzed to examine the synergy or value as the outcome of this
takeover to the acquiring company. The statement of income and balance sheet of
ASNB and AMB pre, during and post-takeover are as presented as follows:
Note: AMBs 2007 financial reports run for 18 months from July 2006 to December 2007.
At a glance, through out the three stages of the takeover process, the acquiring
company, ASNB, indicates an uptrend in its revenue and net income or net profit
performance, while AMB is otherwise showing a declining net profit. On a
consolidated basis, post-takeover, the group managed to record net profit of
RM155.4 million. This reflects an increase in net profit of RM9.9 million when
compared with RM145.5 million net profit of ASNB as a single entity. The
RM9.9 million increase is however, 42.1% or RM7.2 million lower than ASNBs
119
Note: AMBs 2007 financial reports run for 18 months from July 2006 to December 2007.
120
Both, ASNB and AMB, show increasing trend of assets and shareholders equity
in all the three stages. Most importantly, on a consolidated basis, the group
indicates an increase of RM44.6 million in its shareholders equity from RM167.4
million to RM212.0 million post-takeover.
Note: AMBs 2007 financial reports run for 18 months from July 2006 to December 2007.
The assessment of key financial ratios of both, ASNB and AMB, pre, during and
post-takeover, helps to examine the synergy or value resulting from the takeover.
The companies performance encompassing its profitability, receivables turnover
(the turnover of companys income generated from initial service fee,
management fee and other operating fee), total asset turnover and its networth as
121
measured by NTA provide good insights into value creation as the outcome of
this takeover.
6.2.1
Profitability Ratio
AMB, on the other hand, records a declining number in net profit growth,
ROA and ROE, with an exception to its net profit margin, which indicates
an improvement post-takeover compared with pre-takeover. The ROA of
AMB declined from 26.0% pre-takeover to 17.6% post-takeover, while
ROE declined from 43.9% pre-takeover to 25.1% post-takeover.
Net
122
6.2.2
123
6.2.3
Total asset turnover measures the efficiency of the company in using its
assets to generate sales, computed as Sales over Average Total Assets.
ASNB has shown a slower asset turnover pre-takeover at 1.9 times to 1.8
times post-takeover. AMB, similarly, has shown an obvious downtrend of
asset turnover from 1.0 times pre-takeover, 0.6 times during and post
takeover. On a consolidated basis, ASNB group reflects a slower asset
turnover of 1.5 times compared with 1.8 times as a single business unit.
Post-takeover the generally lower asset turnover of AMB, suggesting a
124
less efficiently used of asset to generate sales by AMB, has dragged down
the overall efficiency level of ASNB in assets usage as a group.
6.2.4
6.3
Economies of scale is an economic term that refers to the reductions in per unit
costs as a result of an increase in the size or scale of a companys operations. In
order to measure economies of scale achieved by ASNB post-takeover,
comparisons of per unit production cost based on consolidated basis as against
standing alone operations would be made. The calculation of cost per unit in
circulation is measured by dividing the general and administrative expenses,
125
which are the costs associated with the unit trusts operation over the number of
units in circulation (UIC). The calculation is illustrated as follows:
Post-Takeover
2007
2007
ASNB
AMB
163.23
Post-Takeover
2007
Consolidated
18.60
181.82
71,781.02 2,748.29
74,529.31
0.23
0.68
0.24
Table 18 indicates that the cost per units circulated in the market increases from 0.23 sen
per unit to 0.24 sen per unit as both companies, ASNB and AMB, are combined.
126
The AMB takeover to ASNB was initiated on the main objective to grow the business.
At another juncture, ASNB also hoped to expand its market reach beyond the existing
retail and mass public market. This is to better position ASNB in the marketplace so as to
enhance its competitive advantage in competing with other unit trusts players in the
industry. There were also other factors motivating ASNB to jump into the M&A
bandwagon in the lights of market liberation and globalization that is witnessing few
foreign fund managers already setting their bases in Asia. The assessment of the
achievements of these motivations post-takeover is by comparing ASNBs position as a
single entity with its position as a consolidated entity post-takeover, and the conclusions
are elaborated as follows:
7.1
GROWTH ACHIEVEMENT
The hope and aspiration to grow the existing business have always been the major
factor leading companies into M&A deals. Gaughan, Patrick .A (2005) in his
book, Mergers: What can go wrong and how to prevent it, agrees that the two
most common reasons for M&A are growth and synergy. Growth enhancement as
127
a motive for M&A could also be interpreted into two, revenue (or profitability)
growth or sheer size growth.
In terms of sheer size, ASNBs total fund size in terms of units in circulation
(UIC) as a group (combined entity of ASNB and AMB) has grown to 74,529.3
million units for a total of 25 products or 27 funds compared with UIC of
71,781.0 million units for a total 8 products or 10 funds as a single entity posttakeover. But, the impact of size increase does not bring in much impact to ASNB
when the company is already in its leading position. Only if the acquired company
is able to add to the advantageous of the business then ASNB would benefit from
the acquisition.
The lower ROA of 58.0% on a consolidated basis compared with better ROA of
68.8% as a single entity indicated the reducing asset efficiency when combined.
While the shareholders are not experiencing maximization of value from their
128
equity investment into the combined group as reflected by lower ROE of 84.3%
compared with the 100.5% ROE of ASNB standing alone.
It can be concluded that in terms of profitability, ASNB as group has far from
achieving its profitability growth objective and that the company would be better
off operating as single entity. Gaughan, Patrick .A (2005) commented that
sometimes company may have reached its most efficient size, and growing will
make it less efficient. He also thinks that sometimes it is better for a company to
maintain its position while it still actively seeks better opportunities but resists
pursuing returns that do not meet an appropriate hurdle rate.
In addition, the value maximization objective to the shareholders has also been
violated on the consolidated basis, whereby AMB has not been able to create
value to the shareholders of ASNB as a combined entity. In this instance, ASNB
without AMB is seen to be better off supported by the reflection of the asset
efficiency in its ROA number and the shareholders value maximization as
indicated by the ROE number based on the findings of this study.
129
7.2
OPERATING SYNERGY
Synergy is another most frequently cited term in M&A. The term synergy is often
associated with the physical sciences and in the field of M&A, this term is
actually become a bit overused as a reason for going into M&A deals. In physical
sciences, synergy refers to the type of reactions that occur when two substances of
factors are combined to produce a greater effect together than what the two
substances could account for when operating independently. Simply stated it
refers to situation where 1 + 1 = 3 instead of 2. In M&A, synergy translates into
the ability of a corporate combination to be more profitable than the individual
profits of the firms combined on an independent operation.
Operating synergy refers to the efficiency gain or operating economies that are
derived in any horizontal or vertical merger. Operating synergy is realized when
two combined firms achieve reduction in costs that may be coming from
economies of scale or spreading overhead. The operating synergy resulting from
the takeover and integration of AMB with ASNB could be examined based on the
achievement of the following motivations for the AMB takeover:
7.2.1
Market Penetration
130
Post-takeover, the combined entity of ASNB has been able to reach across
broader and wider market not restricted to just retail and mass public
market. The existing reach of AMB into the institutional market segment
provides avenue for ASNB to generate sales from potential institutional
and corporate investors. Among the faster sources of unit trust sales
growth would be sales generation from this institutional market segment
comparative to the retail segment. The reason underpinning this
observation is obviously due to the huge appetite of institutional investors
leading to the bulk purchases of investment products.
131
7.2.2
7.2.3
Distribution Capacity
132
However, despite the takeover, MBB is still maintaining its exclusive right
over the distribution of the existing unit trust products of AMB. The
disability of ASNB to uplift the exclusivity of selling the existing unit
trusts products of AMB by MBB sales force might incapacitate ASNB in
achieving its target sales for each of these unit trusts products should MBB
lack aggressiveness in pushing the products to the market. Synergy would
be severed due to the lack of control over such distribution decision.
7.2.4
Economies of Scale
Company will achieve economies of scale when per unit cost is reduced as
a result of an increase in the size or scale of a companys operations. This
happens when company is able to spread costs of operations over larger
volume of production given the increase in companys size of operations.
133
In the case of ASNB, on a consolidated basis it has not been quite true that
the company achieved economies of scale given the marginal rise in per
unit cost of circulating one more unit in the market from 0.23 sen to 0.24
sen on a combined business of ASNB and AMB. The higher per unit cost
of running the business of AMB as compared with ASNB has actually
caused the overall cost of ASNB as a group to increase when combined.
7.2.5
Brand Reputation
However, through interviews with the AMB personnel reveals that AMB
has suffered tremendous redemptions of units during in 2006 and posttakeover in 2007. AMB has recorded RM1.1 billion redemptions in 2006,
which has increased by 193.3% from 2005. In 2007, redemption of units
dropped by 10.5% but value wise, it is still on the high side at RM989.0
million. AMBs unit trusts sales has also dropped 47.0% or RM317.8
134
7.3
REVENUE-ENHANCING SYNERGY
7.3.1
7.3.2
135
7.3.3
Combined Profits
As indicated by the profitability ratios of net profit margin, ROA and ROE
of ASNB on a combined entity, the company has not been able to achieve
revenue-enhancing synergy on combined profits post-takeover. Probably a
lot more initiative in streamlining the business activities within the
combined entity is needed in order to realize this synergy moving forward.
7.4
FINANCIAL SYNERGY
7.4.1
Access to Capital
136
137
CHAPTER 8: RECOMMENDATIONS
8.1
The findings from this study reveals that the due diligence process was conducted
after the completion of the signing of the Memorandum of Understanding (MOU).
In other words, the due diligence was carried out after an agreement has been
ratified. In accordance with best practices, in general, due diligence should be
embarked on prior to entering into any M&A or takeover agreement.
The pre-merger processes including the due diligence exercise requires the most
amount of time and energy because the result of the due diligence impacts the
takeover decision and determines the conditions to take to the negotiation table
138
(Anderson Consulting & MII, 1999). At this stage, management would be able to
probe into critical areas determining the success factor of the target moving
forward and ensuring that bidders expectations are met. This would also assist
management in gathering information on possible synergies attributable to
acquiring the target.
8.2
A takeover deal does not end with the acquisition of the target or upon settlement
of the purchase consideration at the end of the deal. The most vital process
following any takeover deal would be the integration process, which is also the
most crucial success determinant of a takeover. According to Banal-Estanol and
Seldeslachte (2004) majority of mergers and acquisitions failed due to poor posttakeover integration efforts.
139
8.2.1
The tasks of integrating AMB with ASNB still remains an uncertainty and
ASNB management plays the most important roles if the synergy is to be
achieved and the total effort is to succeed. Technology in general and unit
trust system in particular, is the backbone supporting daily business operations
of both ASNB and AMB. System integration must be fast enough following a
takeover to ensure that the synergy expectation from the takeover can be
realized. While management indicated planning for the system integration is
in the pipeline, synergy might have been marginalized due to the slow
progress.
8.2.2
140
Easier said than done, but Thompson, Strickland III and Gamble in their
textbook Crafting and Executing Strategies: The Quest for Competitive
Advantage, 15th Edition (2007), agreed that integrating operational relatedness
as in the case of ASNB and AMB would result in value creation coming from
the economies of scale through sharing of activities and resources.
8.2.3
8.2.4
It was observed that new unit trust products introduction to the market is
rather slow under the new entity since the completion of the AMB takeover in
2006. Investment instruments and products are very dynamic in nature, that
innovation and aggressive product introduction are required to attract
investors and boost company sales, which in turn contributes to the growth of
141
the company organically. To date, two years after the completion of the
takeover, AMB undertakes distribution for only one new product, the PNBStructured Investment Product (SIF), which was launched on May 12, 2008,
with a size of 3 billion units over an offer period of 45 days after the
launching.
New product introduction under the new entity should be fast in order to
signify aggressive and serious efforts of the new management in reviving the
newly build entity following the takeover. This would in turn projects a better
image in the eyes of the existing unitholders of both ASNB and AMB, and
potential investors that helps in creating a stronger brand reputation, which
boost confidence among investors with the new management.
8.2.5
Marketing
The function of ASNB as the unit trust distribution arm of PNB demands
effective marketing initiatives to drive the company towards building stronger
competitive advantage over its competitors in the marketplace. The AMB
takeover complemented ASNB with the broader distribution channels that
comprise of the existing traditional over-the-counter channels, personalized
sales agents of ASNB and AMB and the possibility of riding on the MBBs echannel through cooperative collaboration. In addition, ASNB has gained
wider access into new market segment, the institutional or corporate segments
142
and the Islamic funds category. These are synergies valuable to ASNB in
charging the company further into the industry.
However, the distribution of the existing unit trusts products of AMB, despite
the takeover, is currently under the exclusivity of the individual sales agents
of MBB. The exclusivity of the distribution for the existing AMB products by
MBB agents alone would hinder effective strategic planning over the
marketing mix decisions encompassing product, price, place and people, by
ASNB.
It is felt that with the takeover, ASNB should have exclusive rights and
decisions over all the products of AMB and the marketing strategy moving
forwards should be at the discretion of ASNB. Although, the restrictions only
apply to the existing products of AMB, management should look into
measures as to how this limitation could be exploited, for instance, through
the setting of certain sales target to be achieved by MBB agents in the sales of
the existing products, failing which the exclusivity shall be rescinded.
8.3
COMMUNICATIONS
Another aspect moving forward is the communication between the company and
the employees, and the company with external parties. The acquisition makes the
communication channels grow longer due to more people involved, therefore
143
clear and constant communication throughout the integration process can provide
decisive answers to uncertainty and dispel frequent rumors.
Internally, the needs for the ASNB to clearly define their goals and objectives and
to reach the goals within proper and reasonable time frames are also crucial so
that the change process will not be dragged out and eventually brings them to the
old way of doing things.
Communications with the unitholders on the current state of ASNB upon the
takeover and the updates on latest product development are also essential to
ensure that the unitholders are well informed and updated with regards to their
investment with both ASNB and AMB. The dissemination of information can be
done through various means for example companys website, newsletter, annual
report, special announcement and media releases. External communication to
existing unitholders and general public is viewed as important in managing and
promoting investors confidence in the management and company.
144
8.4
GLOBAL COMPETITION
In the light of globalization and nearing market liberalization under the World
Trade Organization (WTO) in 2010, competition in the financial services industry
including the unit trust industry, is getting more intense. In fact, the influx of
foreign fund managers into Asian market, setting bases in Singapore, the
Philippines, Thailand and Indonesia, is widely evidence at present. The dynamic
and more challenging business environment in the near future calls for the needs
for ASNB to adjust their way of doing business to adapt to the worldwide changes
and the threats of new, existing and global competitors. By being the market
leader in the domestic front of the unit trust industry, ASNB will be placed under
close scrutiny of the competitors, locally and globally, for any competitive move.
145
and Hedge Funds) to attract global and domestic investors to invest with the
company.
146
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1. AMB Master Prospectus (2007)
150
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Inc.
8. Gaughan, P. A. (2005). Mergers: What Can Go Wrong and How to Prevent It.
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E.
Websites:
4. Investopedia www.investopedia.com
153
APPENDIX 1
1.
What are the objectives of the takeover? What role was the takeover of AMB expected to
perform?
a. Copy of Board Directors resolution on the takeover decision
2.
3.
4.
e. Any models of takeover adopted? eg. Winners Curse, Bidder Costs, Sellers
Decision.
5.
6.
b. Indirect Approach (start talking with mgmt abt licensing, alliances and then
expanding discussions to encompass a potential M&A)
c.
7.
How pricing for target was determined? (Determinants for the acquisition price)
a. Acquisition price basis of price determination
b. Any estimation of takeover price and return done prior to merger?
c. Paid at discounted price or premium?
8.
9.
10.
How acquisition cost is apportioned over the expected gestation period (cost
amortization)?
ii
11.
12.
13.
Was there any integration planning team being established to integrate operations, human
resources and other core activities of the new entity?
a. The integration plan covers map and work plans for the integration process and
functions of the two organizations.
b. Cost/ benefit analysis whether the cost of M&A exceeds the benefit.
14.
15.
16.
17.
iii
c. System consolidation
18.
What was the feedback received from customer upon the takeover?
a. High/ Low Subscription/ Redemption Rates
b. Customer Feedback/ No. of complaints received
c. Areas of complaints
19.
20.
21.
How will the market respond to the organizations action? i.e this takeover?
a. The market must see the logic in the move and results when promised; the bigger
the price paid, the higher the expectations for return.
22.
What are the on-going business processes/ integration processes that management undertake
currently? the progress so far upon the takeover?
iv
APPENDIX 2
APPENDIX 3
vi
APPENDIX 4
Source: Datastream
vii
APPENDIX 5
viii
APPENDIX 6
ix
APPENDIX 7
APPENDIX 8
xi
APPENDIX 9
xii
APPENDIX 10
xiii