Crowe Horwath AF 1018
Member Crowe Horwath International
Privatisation and Take-Overs
December E-Newsletter | 18 December 2012
Part 1
The Malaysian corporate scene in 2012 is
somewhat of a paradox. The investment bankers
have had a busy year (and you can count on
bumper bonus for them as well!), with the listing of
several large companies in the billion ringgit
league including Felda Global Ventures Berhad,
Gas Malaysia Berhad, and Astro Malaysia
Holdings Berhad. These listings have put
Malaysia into focus on the international map as
one of the top IPO markets in the world. Other
than Facebook which was also listed in 2012, no
other companies in the world have raised more
monies than the Malaysian IPOs. This is some
feat, considering the fact that we have not had
this bragging right for some years now since the
onset of the 1997 financial crisis.
Although the IPO market has been buoyant and
the new listings have been well received with
record fund raising, there is another facet of the
market which may indicate that all things are not
as bullish as they seem and this is the
privatisation of listed companies.
It is an emerging growing trend where
privatisation in Malaysian has become rampant,
an indication that this may continue in the future.
A total of 17 listed companies have been
privatized from January 2012 up to November
2012.
Audit | Tax | Advisory
. there is another facet of the market
which may indicate that all things are not
as bullish as they seem
This gives a value of approximately RM8.8 billion
of market capitalization that has been wiped out
from Bursa Malaysia. On top of this, there are at
least another 24 public listed companies which
are in various stages of being privatized. This
compares to a total of 12 public listed companies
that were privatized in 2011, albeit with a higher
market capitalization of approximately RM10.1
billion.
What is Privatisation?
Privatisation is the general term for the buyout of
the ownership of a publicly traded company, and
for the company to be delisted from the stock
exchange upon completion of the buyout.
Why Privatise?
There are many reasons for the privatisation of
listed companies. The most common reason, and
probably the most compelling as well for the
privatisation, is that the value of the shares of the
listed company that are traded in the market is
substantially lower when compared to the
fundamental and intrinsic value of the listed
company. Therefore, the promoter of the
privatisation stands to benefit substantially if they
are able to privatize the company at a price that is
substantially lower than its intrinsic value. There is
nothing wrong with this, as this is how an efficient
capital market is supposed to operate. In addition,
whilst the promoter is able to make an offer to
privatize the listed company at the price that is
beneficial to the promoter, the minority
shareholders are not forced to sell. The minority
shareholders are able to resist the offer if the
minority shareholders feel that the offer is
unattractive.

Whilst the prime motivation for privatisation may
be due to the undervaluation of the listed
company by the market, this reason is not
normally stated when a privatisation is embarked
upon. Instead, a plethora of other reasons is
usually stated as the rationale for the privatisation.
Some of the typical and stereotypes reasons and
rationales for the privatisation include:-
(i) to achieve full control by the major controlling
parties;
(ii) to achieve more efficient and effective
utilization of resources;
(iii) to have greater flexibility to adopt a capital
structure which will be consistent with the
change in the funding and risk profile of the
restructured organization;
(iv) to provide a reasonable exit to the non-
interested shareholders to realize their
investment especially for those companies
which are trading at a low price to earnings
ratio or low trading volume; and
(v) to reduce inefficiency due to the high
maintenance cost of listing.
One of the largest privatisations in Malaysia,
which is also one of the largest buyouts in Asia
Pacific, was the privatisation of Maxis
Communication Berhad (Maxis) in 2007 which
had a market capitalization of approximately
RM40 billion when it was privatised. The
privatisation was undertaken by the major
shareholder, Tan Sri Ananda Krishnan (TAK),
through Binariang GSM Sdn Bhd (Binariang),
when Binariang launched a voluntary general
offer to buy all shares not held by Binariang at an
offer price of RM15.60 per share. This was at a
premium of approximately 20% higher than the
last traded price of RM13.00 per share when the
offer was made. TAK is no stranger to the
privatisation transactions, having successfully
taken Bumi Armada Berhad (Bumi Armada)
private together with Objective Bersatu Sdn Bhd
in July 2011, and also Astro Malaysia Holdings
Berhad in October 2012.
In the offer document, Binariang stressed that the
privatisation was made so that they could take full
control of Maxis, in order that as private owners
they will have greater flexibility to decide and act
on the direction of Maxis including the planned
major forays abroad.
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Crowe Horwath AF 1018
Member Crowe Horwath International
With the decision to invest overseas, Binariang
foresees that such bold actions would involve
huge capital outlays, strain Maxiss cash flows,
may cause short-to-medium term earnings
volatility and crimp its capacity to pay dividends to
shareholders. If Maxis remains as a listed entity,
the minority shareholders would be subjected to
all these risks.
The privatisation of Maxis was successfully
carried out by Binariang. However, what is not
clear is whether the decision of the minority
shareholders to accept the offer was based on
their conviction of the rationales for the
privatisation as intimated by Binariang, or they
were more swayed by the relatively rich premium
of the offer price.
How to Privatise?
The main regulations governing privatisation
transactions in Malaysia include the Companies
Act 1965, the Capital Market & Services Act 2007
(CMSA), the Guidelines for the Acquisition of
Assets, Mergers and Takeovers issued by the
Foreign Investment Committee of Malaysia (FIC
Guidelines), the Malaysian Code on Take Overs
and Mergers 2010 (Take-over Code) and the
Listing Requirements of the Bursa Malaysia
Securities Berhad (Bursa Malaysia) for public
listed companies.
privatisation of Maxis was successfully
carried out by Binariang. However, what is
not clear is whether the decision of the
minority shareholders to accept the offer
was based on their conviction of the
rationales for the privatisation as
intimated by Binariang .
 Crowe Horwath AF 1018
Member Crowe Horwath International

These regulations are put in place to protect the The conduct of the take-over schemes must
interests of shareholders and to ensure that all comply with the requirements as stipulated by the
take-overs and mergers take place in a Securities Commission, and embodied under the
competitive, informed and efficient market. Also, Rules of the Malaysian Code on Take-Overs and
the laws and regulations are to ensure all Mergers 2010.
shareholders of a company involved in a take-
over and merger situation receive fair and equal The take-over offers could be made by any party,
treatment. i.e. by the existing controlling shareholders or any
other party. If the offer is made by existing
The methods of privatisation are mainly controlling shareholders or by a party that is
categorized into:- aligned to the controlling shareholders, then the
offer is commonly regarded as a friendly take-
(i) Take-over offer; and over. If the offer is made by a party that is not
aligned to the existing controlling shareholders or
(ii) Selective capital repayment; and not by the invitation of the board of directors, then
this is generally regarded as a hostile take-over.
(iii) Disposal of Assets and its business
undertakings. In Malaysia, the take-over offer can be voluntary
or mandatory. A mandatory offer is required to be
Based on recent trends, the most common type of made when the shareholding ownership in the
privatisation is via the take-over offer route, with a listed company is above the trigger level due to
total of 11 and 9 transactions or representing 65% acquisition of shares by the owner. The trigger
and 75% of the total privatisation transactions in levels are namely:-
2012 and 2011, respectively.
(i) an acquisition of 33% of voting shares by a
person together with persons acting in concert
with them (acquirer), or when
Methods of privatisation

Take-over offer

(ii) the acquirer already holds more than 33% but

less than 50%, an acquisition of 2% within a
Selective Capital
Repayment Year 2011
period of 6 months would require that such a
mandatory offer be made.
Year 2012
Disposals of assets
and its business Offers that are made when the trigger levels are
undertakings
not breached are voluntary take-over offers.
0 5 10 15
Number of companies For all mandatory take-over offers, the offer would
become unconditional once the level of
acceptance has reached 50% of more of the
share capital of the listed company.
Privatisation via take-over offers is relatively
straight forward and not a complicated exercise,
For voluntary take-over offers, the acceptance
and therefore this seems to be the preferred
level can be set by the offeror for the offer to
approach when it make sense for owners to
become unconditional. Therefore, it is not
undertake privatisation of their listed companies.
uncommon for a voluntary offeror to impose a
condition for a takeover such that it must have
acceptances of at least 50% of the shares in a
Part 2 voluntary take-over scheme, failing which the offer
will fail and the acceptances received will be
Privatisation via Take-over Offers returned to shareholders.
Public listed companies in the Bursa Malaysia can Companies that were taken private in 2012 via
be taken private through a take-over offer to the take-over offers included YTL Cement Berhad,
shareholders. Bandar Raya Developments Berhad and United
Malayan Land Berhad.

Audit | Tax | Advisory


This is also the preferred approach by Tan Sri
Ananda Krishnan (TAK) where all companies
that were taken private by him or parties
connected to him including Maxis, Bumi Armada
and Astro All Asia Networks Plc were done via
take-over offers.
The offeror succeeded in getting not less than
90% of the shares not held by the offeror or
persons acting in concert prior to privatisation via
the take-over offers. As allowed by the Capital
Market & Services Act 2007 (CMSA) and
Companies Act, 1965, the offerors can then
invoke the compulsory acquisition of the
remaining shares not held by them if the
remaining dissenting shareholders decide not to
take up the offer under the privatisation. It can be
seen that a majority of the successful offerors
eventually invoked this provision and compulsorily
acquired the remaining shares of the dissenting
shareholders.
The compulsory acquisition provision is a very
useful tool in any privatisation exercise. This is to
ensure that the offerors would be able to buy out
the entire company in a privatisation, so long as
they are able to successfully obtain acceptances
for not less than 90% of the shares not held by
them upon the launch of the privatisation scheme.
Effectively, if there are some small dissenting
shareholders (representing less than 10% of the
buy-out shares) who do not agree to the
privatisation, the law is crafted so that this small
dissenting group would not have a green mail
leverage against the offerors. This is a fair
provision, and adequate protection has been
included in the laws to ensure that the interests of
the minority shareholders are not jeopardized in
any privatisation scheme.
Without this provision, an offeror in a privatisation
take-over offer scheme would then be subjected
to uncertainties of not being able to buy-out the
entire company even if the offer to the minority
shareholders is fair and reasonable as any
shareholder can refuse to accept the offer.
Privatisation via Selective Capital
Repayment (SCR)
Another method that is also popular with
privatisation is the Selective Capital Repayment
(SCR) route.
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Crowe Horwath AF 1018
Member Crowe Horwath International
Under this route, the major shareholder offers to
take the listed company private, by proposing the
listed company to buy back the shares of the
minority shareholders at an offer price. The
shares bought back would then be cancelled
pursuant to the Section 64 of the Companies Act
1965. Upon cancellation of the shares bought
back from the minority shareholders, the major
shareholder would then own 100% of the reduced
capital of the company, and the company would
then be delisted upon completion of the exercise.
The SCR route would require approval from the
shareholders of the company via a special
resolution in which the promoter would have to
abstain from voting. In addition to regulatory
approvals, the listed company would require an
approval from the creditors for the capital
reduction and thereafter a sanction by the Court.
The drawback for the SCR method as compared
to the take-over route is that this may be more
tedious as approvals from creditors and court
would be required for the successful
implementation of the privatisation. The privatised
company may also need to recapitalise if the
reduced capital from the privatisation is not
optimum for the operations of the company.
Generally, privatisation schemes that involved
SCR are those companies which are
undervalued, and have substantial cash or ability
to raise cash so that the major shareholders can
use the cash in the company to make payment to
the other shareholders via the SCR. In this way,
the major shareholders need not raise the
necessary financing in order to take the company
private.
Some of the listed companies that have used this
route as a method for privatisation of the listed
company in 2012 included Mamee-Double Decker
(M) Berhad and Lipo Corporation Berhad. The
privatisation of these 2 companies alone has
wiped out market capitalisation of approximately
RM716 million from Bursa Malaysia.
... privatisation of the listed company in
2012 included Mamee-Double Decker (M)
Berhad and Lipo Corporation Berhad. The
privatisation of these 2 companies alone
has wiped out market capitalisation of
approximately RM716 million .
 Crowe Horwath AF 1018
Member Crowe Horwath International

John Master Industries Berhad (John
Master Industries) A Case of Indirect
Privatisation via the disposal of assets
and business undertakings
John Master Industries sale of the entire business
and undertakings and returning the proceeds to
shareholders was not a privatisation exercise, well
not anyway in a technical sense. The exercise,
when announced on 23 June 2009, was
effectively a proposal to dispose of the entire
business and undertakings via a tender exercise.
The rationale for the proposed disposal as stated
by the board of directors was due to uncertain
outlook of the companys future financial
performance whereby its revenue growth for the
past 3 financial years ended up to 31 March 2009
had been rather stagnant and that the company
had been incurring losses for the 2 of the past 3
financial years as well as the challenging outlook
and prospects of the industry in which the
company operates in. Given the unfavourable
circumstances above, it is unlikely for the
company to declare dividends in the near future.
For the benefit of the shareholders, a tender was
undertaken to enable the company to realize the
highest value for the disposal. As a tender was
called, anyone can bid for the business and
undertakings and assets, in whole or in part.
This does not preclude the major shareholder as
well from partaking in the bid.
The major shareholder of John Master Industries,
via Yoon Foong Garments Sdn Bhd (YFG),
made a bid for RM77.4 million, and was the
successful bidder in the tender exercise as no
other higher bid was received when the tender
closed on 23 July 2009. After negotiation with the
independent directors, YFG was given the green
light to buy the entire business and undertakings
of John Master Industries after they agreed to
increase their offer price by RM1.1 million from
the original bid. John Master Industries then
embarked on a capital repayment exercise to
repay all the proceeds from the disposal of the
entire business and undertakings. The indirect
privatisation of John Master Industries was
successful when the minority shareholders voted
for the disposal and repayment of the proceeds.
The shareholders received a RM0.63 per share
capital repayment which is equivalent to the net
asset per share of the company after taking into
consideration of the loss arising from the disposal
and estimated expenses for the exercise. The
repayment amount was at a premium of 28.6%
over its last traded market price of RM0.49 per
share prior to the disposal announcement on 19
June 2009.

Part 3

Valuation for Privatisation

The success or failure of the privatisation can be affected by the offer price and the corresponding premium
of the offer price over the market traded price. Needless to say, the privatisation would have a higher chance
of succeeding if the price offered contains a higher premium when compared to the market traded price. The
average premiums paid for recent successful privatisation transactions are about between 18% to 22% over
the 5-day volume weighted average price, as can be seen in the table below :-

Date of 5-day VWAP prior

Target Company Offer price Premium
announcement to announcement
RM RM RM %
12 March 2012 Lipo Corporation Berhad 1.25 1.04 0.21 20.19
30 July 2012 Bandar Raya Developments Berhad 2.90 2.51 0.39 15.54
Rock Chemical Industries (Malaysia)
19 March 2012 2.10 1.73 0.37 21.39
Berhad
2 March 2012 eBWorx Berhad 0.90 0.76 0.14 18.42
16 April 2012 TSM Global Berhad 1.25 1.22 0.03 2.46
9 February 2012 Mahajaya Berhad 0.85 0.72 0.13 18.06
27 January 2012 Golden Frontier Berhad 1.50 1.23 0.27 21.95
27 January 2012 Glenealy Plantations (Malaya) Berhad 7.50 6.43 1.07 16.64
(Source: Circular to Shareholders)

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The Fine Line of Success for Privatisation
A privatisation exercise can be expensive,
especially if it fails to achieve its objective.
Therefore, it is important that the privatisation
scheme is well planned and thought out before it
is launched.
A privatisation affair is an expensive exercise, as
extensive and meticulous preparation would have
to be made before the privatisation scheme can
be launched. Experts such as investment
bankers, lawyers and accountants would need to
be hired to assist in the analysis and preparation
of the privatisation scheme, to inform
shareholders, the public and obtain the necessary
approvals from all parties including authorities and
shareholders.
In addition, in some cases, the offeror may require
financing to carry out the take-over offers. The
investment banker that is advising the offeror is
required to satisfy himself and confirm to the
authorities that the offeror has sufficient funds to
carry out the take-over offer.
As for minority shareholders who are being
offered an exit via privatisation, their decision to
hang on to their shares or accept the exit via the
privatisation would very much depend on the price
offered, and their own outlook on the future
undertakings of the business. It is difficult for
minority shareholders to make an assessment of
the future outlook, as they do not have, or
understand the information, business dynamics
and intricacies that would be in the domain of the
major shareholder making the offer.
The playing field, as they put it, is never the same
for the minority as compared to the majority
shareholders. In most cases, the decision made
by the minority shareholders in a privatisation
scheme, is much influenced by the price offered
and market sentiment, rightly or wrongly.
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Crowe Horwath AF 1018
Member Crowe Horwath International
Failure of privatisation schemes in Malaysia is a
rarity. For example, M3nergy Berhad (M3nergy)
saw 2 attempts to take the company private within
a space of 20 months.
M3nergy is principally involved in the oil and gas
industry where it is an FPSO player (similar to
Bumi Armada although much smaller in size), a
sector that is much coveted by investors in recent
years.
The first attempt was made in September 2008
when Melewar Equities (BVI) Ltd (Melewar
Equities), the largest shareholder of M3nergy,
undertook a takeover bid for the company at
RM1.20 per share.
This was at a premium of approximately 48% and
49% higher than the 5-days volume weighted
average price and last traded price of RM0.810
and RM0.805 per share when the offer was made.
Some minority shareholders were unhappy with
the offer, citing it as too low compared to the
companys net tangible assets. The privatisation
bid failed, although Melewar Equities managed to
increase its stake from 26.50% to 72.78% as a
result of the bid.
A second attempt was made to privatize M3nergy
in May 2010, when Adamus Avenue Sdn Bhd
(Adamus), a company controlled by the
managing director of M3nergy, made an offer to
privatize the company at a price of RM1.85 per
share in May 2010. The second attempt was
priced at a substantial discount of RM1.34 per
share, or 42% below M3nergys unaudited net
tangible assets per share of RM3.19 as at 31
March 2010.
The second attempt privatisation offer, however,
was not well accepted by M3nergys board, with
its financial adviser Hwang DBS Investment Bank
Berhad saying the conditional takeover offer from
Adamus was not fair and not compelling.
Notwithstanding this, it was second time lucky for
M3nergy as the privatisation was successfully
carried out despite the views taken by the board
and the financial adviser.
A privatisation affair is an expensive
exercise, as extensive and meticulous
preparation would have to be made before
the privatisation scheme
 Crowe Horwath AF 1018
Member Crowe Horwath International

When Price is Cheap, Beware of Subsequent to the purchase, ThaiBev together

Competition
A recent case in Singapore would provide a good
example of what would happen if an offer is made
at a price that is deemed to be cheap by the
market and market participants. Although this is a
buy-out offer and the intention is not known at this
stage whether it will lead to the privatisation of the
listed company, the saga does provide a good
insight into the predatory nature of market
participants when they smell a bargain. Therefore,
owners need to be aware of competition, and
competition is real. This is more so in situations
where owners do not have control (i.e. more than
50% of the voting rights) over the listed company.
with a party acting in concert, i.e. TCC Assets
Limited (TCC Assets), then launched a
mandatory conditional cash offer to buy all the
shares not held by ThaiBev and TCC Assets at an
offer price of S$8.88 per share which represented
13% premium over the 3-months volume
weighted average price of S$7.85 when the offer
was made. The value of the remaining stake not
held by ThaiBev and TCC Assets would amount
to S$8.8 billion, if all the shareholders accept the
buy-out offer. This is no small feat, and if
successful, would rank as one of the largest M&A
deals in South East Asia.

Fraser & Neave Limited (F&N) is a listed

company on the Singapore Stock Exchange, and
it is considered a blue chip company with many
established brands and household names such
as Tiger Beer, 100 Plus and etc in the beverage
industry. In addition to this, F&N also has an
interesting and profitable business in property
The board of F&N felt that the offer by ThaiBev
investment where it has a large portfolio of
and its connected party was low, as they believed
properties in key and desirable locations in
that F&N deserves a higher price. The board
Singapore.
openly stated that it welcomes a competing bid.
F&Ns share price has been rising and falling in
The competing bid did come in on 15 November
tandem with each market cycle and its profit
2012 when OUE Baytown Pte Ltd (OUE), a
trend. Up till recently, the share price has not had
company controlled by the Indonesian tycoon
much excitement. Much has changed since 18
Riady family, made a competing offer to all
July 2012, and F&N is now in full play.
shareholders of F&N to buy all shares at an offer
price of S$9.08 per share. The new offer is higher
The saga started when Thai Beverage Public
than the offer made by ThaiBev and TCC Assets
Company Limited (ThaiBev) entered into
by S$0.20 per share, i.e. an improved bid of over
agreements with Oversea-Chinese Banking
2.2% to the original offer.
Corporation Limited, Great Eastern Holdings
Limited and Lee Rubber Company (Pte) Limited
At the time of this article, the take-over saga of
on 18 July 2012 to acquire 22% of F&N for
F&N is still on-going. It remains to be seen how
S$8.88 per share for a total consideration of
this take-over would finally pan out. The
S$2.8 billion. ThaiBev, the owner of the renown
undisputed winner in this take-over saga is the
Chang beers in Thailand, is controlled by the Thai
minority shareholders, as the battle to take over
billionaire Charoen Sirivadhanabhakdi. Charoen
F&N by ThaiBev and OUE has resulted in F&N
Sirivadhanabhakdi has made headlines in
share prices rising to levels that have not been
Malaysia several years ago when he acquired
traded for a long time.
Westin hotel for a then record breaking valuation
of RM1 million per room.
If you are contemplating a privatization scheme,
please feel free to contact the writer for
owners need to be aware of consultation.
competition, and competition is real. This
is more so in situations where owners do Written by:
not have control . Onn Kien Hoe
Partner
Crowe Horwath Advisory Sdn Bhd
21 December 2012

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