Malaysia Take Over code being reviewed
Filed Under (Business News) by Webmaster on 07-04-2010
Tagged Under : eon bank, eon capital, Hong Leong Bank, Securities Commission Malaysia
AS THE debate on takeover rule changes heats up, a corporate lawyer argues that the role of independent advisers can be boosted instead to protect small investors and help them get a higher offer price. SC proposal to review the take over code after the announced take over of EON Capital Berhad (holding company of EON Bank) by Hong Leong Bank via acquisition of assets and liabilities instead of acquisition via the listed entity.
Sreesanthan Eliathamby, a partner of law firm Kadir Andri & Partners, who has in the past advised on several major transactions in the country, said there are other more effective ways to achieve a better price for minority investors in a merger and acquisition (M&A) deal, rather than tightening the rules outright.
“For example, you can expand the role of independent financial advisers to ensure that the advice given is more granular and assist the minority in making an informed decision,” Sreesanthan told Business Times in an interview in Kuala Lumpur yesterday.
“If the price difference between what the independent adviser has recommended and the offer is more than 10 per cent, the regulator can require that the deal cannot go through,” he suggested.
He said the Securities Commission (SC) should look into these alternatives because a tougher rule will immediately drive away potential buyers on impression that a deal is harder to be done, and yet there is no guarantee that minorities will get a higher offer once the bar is raised.
“We must be clear on the rationale for raising the shareholder’s approval threshold. Is it for uniformity, or the perception of shareholder democracy or pricing? If it is pricing, then my view is that it is better achieved in other ways,” he added.
Last month, the SC said it plans to close the gap among different rules that govern takeover activities. The regulator has put up a set of consultation paper on this where the public has until today to respond.
Among the proposed changes are that a company planning to sell off its key assets must get the approval of at least three-quarters of its shareholders. The plan can also be blocked if at least a tenth of shareholders votes against it.
K&N Kenanga Holdings Bhd group director Tengku Zafrul Aziz said the veto rights given to the minority shareholders who own just more than 10 per cent of a company is unfair to other owners.
“This only protects the minority, but all shareholders have their rights too. This is too onerous for any company because why would you need a majority stake if you can practically control the company with slightly more than 10 per cent?” Zafrul told Business Times when contacted.
On the existing regulation gap on various methods to take over a company, Sreesanthan argues that each route has in itself the check and balance to ensure sufficient investor protection.
“People think that when the proponent wants to take a company private, they will sit down to see which route requires the lowest approval threshold to get through. This is not true in real practice.”
He said some opted for the assets and liabilities sale method because the potential buyer can do due diligence on the target company’s assets before presenting the offer. In comparison, buyers cannot do a due diligence on takeover offers under the Takeover Code, and hence, the offer price will be lower to provide for any surprises.
The asset and liabilities sale route also gives flexibility to the target company to stay listed and find another investment once the existing assets are sold, and not necessarily delist the company as in the case of a takeover.
