Sime Ready To Rumble

As reported in theedgedaily: Synergy Drive Bhd is a step closer to its multi-billion ringgit merger exercise involving Golden Hope Plantations Bhd, Kumpulan Guthrie Bhd and Sime Darby Bhd group of companies, after obtaining the Securities Commission's (SC) approval.
Synergy Drive secured the approval on Monday to proceed with the mega merger exercise, it said in a statement yesterday. The eight companies involved in the merger are Golden Hope, Kumpulan Guthrie, Sime Darby and their respective subsidiaries — Mentakab Rubber Company (Malaya) Bhd, Highlands & Lowlands Bhd, Guthrie Ropel Bhd, Sime Engineering Services Bhd and Sime UEP Properties Bhd.
Synergy Drive will acquire the entire businesses and undertakings, including all assets and liabilities of the eight companies, to be satisfied by the issuance of redeemable convertible preference shares (RCPS). "Shareholders can immediately convert the RCPS receivable as purchase consideration to Synergy Drive shares valued at RM5.25 per share or redeem them for equivalent cash," it said.
Synergy Drive also sought the SC's consent for the listing of Synergy Drive on the Main Board of Bursa Malaysia Securities Bhd. The listing is set to take place in November. In the statement, Synergy Drive chairman Tan Sri Md Nor Yusof said: "With the approval from the SC secured, we look forward to shareholders' endorsement for the merger at the respective extraordinary general meetings which are slated for August."
Upon completion of the merger, Synergy Drive is expected to have a combined workforce of about 107,000 people and five core businesses, namely plantations, property, heavy equipment, motor vehicles, and energy and utilities. The company will potentially emerge as the second largest company on Bursa with a market capitalisation of some RM48.5 billion, based on the market capitalisation of the eight companies as at June 15, 2007. "This represents an increase of RM18.3 billion or 60.8% to shareholders since the announcement was made in Nov 27 last year by CIMB," it added.

The majority of research houses has Sime Darby as a SELL at RM10.00. However, let's look at the major driving trends with the emergence of Synergy Drive:

a) SD will have 55% non-plantation activities, in particular, their aggregation and strategy for their property township development will be a big kicker for this landbank giant.

b) SD will 45% revenue from plantation, and even simple synergies such as sharing planting systems, mills, aggregation of purchasing and sharing of facilities will start to bring meaning to being big.

c) The sheer size of SD's plantation makes its a crucial "plantation exposure" and/or benchmark.

d) The huge advantage SD has over the rest is liquidity. SD is expected to be the third biggest company on the Bursa after Tenaga Nasional and Maybank. Expected market cap will be nearly RM49 billion on listing date.

e) We can expect SD to be the frontrunner in the following deals: Bakun project, submarine cable to transport 1,600MW to the peninsular; following the surprise sale of its 29.3% stake in Jaya Holdings for S$301.1m, it is very likely that SD will try for Ramunia again (or some other similar vehicle to replant their foot into oil & gas)

f) There are more "inefficiencies" in many of the smaller companies under the wing of SD that can be harnessed or reworked.

The timing is very good esp when you look at the property landbank and plantation acreage of SD, the two most attractive sector following oil & gas. SD will be the one stock an international fund manager can hold to get the broadest exposure into Malaysia, with liquidity.