Thursday, December 06, 2007
Ooops!!! Big Wok!!!
Seng: "In most corporate exercises, where there is a choice between a share-swap or cash option, the automatic default option — if a shareholder fails to choose or reply — is usually the share-swap one. ". I note with interest that the recent LIONDIV/Parkson restructuring gave shareholders 1.3 ACB shares as default, instead of automatically cashing out shareholders. It's true it's not directly comparable since LIONDIV still exist, whereas previous coy dissappear, but that should be no reason to not give shares isn't it? Perhaps someone can explain to me why it must be automatic cashing out, as I still don't understand. It's true SD is much more complex restructuring, involving 9 companies, but that means having 9 different multiples - one for each company potentially, maybe not (cf 1.3 x for ACB), but why automatic cashing out? I am puzzled....
Dali - My additional point is that Synergy Drive was a unique proposition, and that the GAP btw the px fixing for cashing out till the actual conclusion of the exercise was very substantial. SD directors and the lawyers should be AWARE that the mkt px has moved substantially prior to the suspension of Sime Darby - to me that is a material change of underlying factors. The mgmt and lawyers should be aware that there has been a MATERIAL CHANGE, and should warrant some form of redress. If the pre suspension px of SD was 7.00 or even 7.50, one can argue that the default/elect options would be deem as FAIR. Owing to the material change, one can easily predict the dire consequences ahead, and should have acted to minimise the impact to the detriment of shareholders.
In developed mkts, the board will appoint an independent advisor for minority shareholders, and I am sure the independent advisor would have suggested AGAINST the default for cash option esp when the presuspension px is almost double the cash option. I hope the SC and Bursa will implement new guidelines for future transactions.
Final point, if the affected shareholders really wanted the cash option, they could have sold anytime during the week leading up to the suspension and got nearly double the 6.46! What does that tell... that they are still holding the old Sime Darby shares for the 6.46??? Who in the world would do that? Yes, the blame largely lies with the affected shareholders, but some blame must accrue to the way the deal was structured, and failing to "act" when there has been such a material change in the crucial terms and conditions.
Yes, Sime Darby is the world's largest plantation company now. However there has been a GRAVE INJUSTICE inadvertently committed by the company & its related advisors / registrar. Let's listen in to a conversation between an auntie and her remisier a few days back:
Aunty: Ah May ah..., my Sime Darby now trading again aah??
Remisier: Yes, it touched RM12.00 just now.
Aunty: Waaah ... so good one... lucky I hold for 3 years never sell ... thats why la... people should stick to blue chips, cannot lose one... Can you sell my 3,000 Sime Darby now ... I think I will use the money to visit my old friends in Australia..
Remisier: OK, .... let me check your account.... eh, Aunty you have no Sime Darby in your CDS account, only left 2 lots of Mems Technology...
Aunty: WHAAATTTT.... (and faints..)
Now repeat that conversation a few hundred times over across all brokerages in the country. You think the Hinduraf and Yellow Power protest marches were aggressive... wait till these affected investors bang on Sime Darby's doors.
The Problem - The circular and announcement by SD clearly stated that if you do not elect, you automatically by default will receive 6.46 in cash. We all know the pre-suspension price of SD, nearly double that cash amount. Those who ignored or did nothing automatically got cash instead of new Synergy Drive shares.
The Legality Side - Lawyers will advise that you should not allow default clause to receive shares, but to allow default clauses to receive cash is OK. I can understand where they are coming from - and legal thinking along those lines, can we enforce that those who did not turn up to vote in the upcoming elections will automatically be an extra Vote for BN? IT IS SO OBVIOUS that the deal favours to take up the new shares by a very wide margin. It is also probable that there will be some who will fail to follow up on these type of "exercises" maybe through their ignorance or genuine mistakes. That being the case, I don't think it is legally or morally wrong to put in the clause that in default they will receive shares. What is the law and legal system there to do - to ensure justice and fairness, both not evident here.
The Sufferers - Its not just the aunties and uncles, many foreign investors are affected as well. Custodians also got whacked by their clients. Clients who manage 1,000 companies in their portfolio may have missed the circular as well.
Remisiers/Dealers - Good ones would have inform their clients and reminded them what to do. If they didn't, well, you should change your remisier.
Actual Gainers & Losers - Well if you got a cheque for your old Sime Darby shares, that's your losses. The gainers are the new shareholders in Sime Darby, as the company need not fork out as many new shares vis-a-vis the cash portion. The dilution effect is less. But to SD's bottomline, its all negligible, but the losses to the real shareholders are very real indeed.
Sime Darby - While the PR dept can trumpet all they like that they made the proper announcements and laid out the rules. There are no rules governing equitable performance by the management or doing the right thing. These are not strangers, they ARE your long suffering shareholders who stood by the company through thick and thin - and this is what they get? Is this managing with shareholders' interests as the top priority? Can do better right??? Can do so much better!!!
Level Of Care - SD, their lawyers, the merchant bankers and the registrar cannot and should not hide behind prepared text and legality to excuse themselves from the debacle. Only an IDIOT would have selected to receive cash. Yes, some of the fault can be ascribed to the shareholders who did not follow up on their part. But, as I have mentioned above, SD's management, the lawyers and registrar all had a role in this as well.
Solution - Give them all shares in the new SD, take back their cheques. If you need to hold an AGM to do this, do it. Then, being the biggest plantation company in the world may actually mean something the next time you say that you have the shareholders' interests at heart.