Probe on Sime-E&O deal, pressure for general offer - Is there a hidden agenda?

An article by MalaysianInsider.com got me thinking. Sime Darby has signed an agreement with 3 different shareholders for 30% of the Eastern and Oriental (E&O) stake at 60% premium to the market price.

The contention is that the SC chairperson's (Zarinah Anwar) husband is the chairman of the E&O board. He has over the last 4 months bought 450,000 units of E&O. The market is basically saying that since he is the chairman, he would have known about the transaction and now his stake is worth 60% higher than when he purchased the shares. Was there any insider trading involved? I do not think so. Why?

1. He was not the seller although being the chairman, he would have known the shares are undervalued - hey! that's why he bought, anyway but he may not know that there is a private deal going around;
2. The 450,000 shares bought over last 4 months was not the only time he bought the shares. In fact that 450,000 shares only represents 11% of the E&O stake he owns. He was buying the stocks from years before in fact. Prior to the purchase, he already owned 4.05 million shares. Hence claiming that he has taken advantage of the pending deal may not be right. If he knew, he would have bought much much more, and normally in this situation they do not use their own name. In this case, he used his name and did announce to Bursa. To me nothing wrong here;
3. Are we saying that the price of E&O is now RM2.30 per share? Not really. Sime Darby wanted a controlling stake and that 30% is the controlling stake. To have a controlling stake, usually a premium has to be paid.
While I may not think there are any hanky-panky involved surrounding Zarinah, I welcome SC and the Watchdog to probe the deal further. Zarinah also has to come clean and reveal their position in this deal. My advice is this though: Since you are the SC's chairperson, get your husband to resign from all public company's position unless of course his own business. We have too many of ex-politicians or even current politicians in the public listed companies board.

Read the article below:

KUALA LUMPUR, Sept 9 — Securities Commission (SC) chairman Tan Sri Zarinah Anwar is under pressure to investigate her husband, Datuk Azizan Abdul Rahman, for insider trading over conglomerate Sime Darby Bhd’s recent purchase of 30 per cent in property developer Eastern & Oriental Bhd (E&O).

There is also pressure on Sime to make a mandatory general offer (MGO) to E&O’s minority shareholders as the plantations-to-property group had paid a 60 per cent premium for the 30 per cent stake bought from three shareholders. Azizan, who is E&O chairman, did not sell to Sime but has been reportedly buying shares in the past few months.

The SC has already said it is investigating the deal although it did not note the relationship between Zarinah (picture) and Azizan.

“We are also examining the circumstances surrounding the transaction for any Takoever Code implications. Our course of action will be based on our findings,” SC said in an e-mail response to local newspapers on Wednesday.

Minority Shareholders Watchdog Group (MSWG) chief executive officer Rita Benoy Bushon had also questioned the deal and asked if there would be an MGO although the share purchase was below the 33 per cent threshold to trigger a mandatory buy.

“Where does this leave the minority shareholders? Is it fair to them?

“We believe that in the circumstances, the Securities Commission should investigate whether the other conditions for an MGO have been fulfilled,” Bushon wrote in The Star newspaper yesterday.

Bursa Malaysia filings showed that shareholders and board members of E&O and investment firms had been buying up E&O shares ahead of the deal being announced on August 28.

Just before the Hari Raya break, Sime Darby announced it wanted to buy a 30 per cent block (involving 273 million shares and 60 million irredeemable convertible secured loan stocks) in E&O at RM2.30 per share or a total of RM766 million from three vendors — E&O managing director and founding member Datuk Tham Ka Hon, Tan Sri Wan Azmi Wan Hamzah and Singapore-listed GK Goh Holdings Ltd.

The RM2.30 offer price represented a 60 per cent premium to E&O’s then market price.

The filings revealed that GK Goh bought shares totalling 1.25 million shares from the open market for three consecutive days starting August 10. Others buying up E&O shares in August ahead of the deal being announced include ECM Libra Financial Group Bhd, which acquired 6.16 million shares, increasing its stake by 0.63 per cent amounting to 6.25 per cent in four transactions in August.

Azizan also purchased 100,000 shares on August 12 from the open market, bringing his total purchase to some 450,000 shares from the open market involving five separate transactions from April to August this year.

In a statement to The Star, Azizan said: “With regard to the issues raised pertaining to Sime Darby’s proposed acquisition of a 30 per cent interest in E&O, I would like to highlight that it is a private transaction between major E&O shareholders and Sime Darby.”

“The transaction does not require board approval and, hence, was not discussed at the board level. As such, board members were not privy to the transaction and continued to trade in accordance with the prevailing rules and had made appropriate filings with Bursa Malaysia,” Azizan said in the e-mail response.

Apart from these transactions, three of the transactions were done in July and August. Based on Bloomberg data, E&O saw trading volumes increase drastically in July and August, with the company’s share price hitting an initial high of RM1.70 ahead of the deal being announced. E&O’s share price had been moving upwards since mid-March (RM1.08 on March 16) and closed at RM1.68 yesterday.

“The main sore point is the offer price which amounts to 19 times E&O’s forecast earnings for 2012 and 1.85 times its price-to-book value, where, by comparison, the property sector has an average of 12 times forecast earnings for 2012 and 0.8 times price-to-book value,” Bushon had said in her column in The Star daily.

She argued while the premium could be partially justified since it is a controlling block, “but with a mere 30 per cent stake, the extent of earnings contribution accruing to Sime is merely at the equity-accounting level as an associate, or a mere 0.6 per cent increase to Sime Darby’s profits in 2012 and 2013”.

“So soon after reeling from its recent billion-ringgit losses in its energy division, it is hoped that the board had undertaken all due diligence in this deal,” she added.

Serious Investing!

Sold Airasia and bought Oldtown

I just sold Airasia, basically took profit (made RM1,653.36) and bought 6,200 units of Oldtown.

Reason for doing so is that I have liked Oldtown in my previous writing. Now the price is below its IPO price of RM1.25 i.e. I bought at RM1.15 which is amazing as I get to buy much lower than the price I envisioned would have put my hands in - the latest quarterly report of 30 June 2011, I do not see any reasons for me to change my view on this coffee chain. It has built itself into a strong brand. Ironically I am selling a strong brand as well - Airasia.

Why I sold Airasia? If you previously read some of my blogs, while I like this airline, I could not comprehend the deal with MAS. Anything I am not very sure, well I do not like and this deal with MAS is big, although may benefit Airasia in the long run.

Anyway, Oldtown will bring much better cashflow than Airasia. Airasia is not a cashcow while Oldtown has a very good chance of building itself towards a cash cow. Hey! it just announced a 0.025 dividend - keep it up.

How does my investment position look like now?

Serious Investing!