Hard for UMW to seal deal without raising offer price for MBMR stake

This article first appeared in The Edge Malaysia Weekly, on May 14, 2018 - May 20, 2018.
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THE tussle among Med-Bumikar Mara Sdn Bhd shareholders over its majority stake in listed automotive group MBM Resources Bhd (MBMR) may be close to an end. But that does not mean UMW Holdings Bhd will be able to seal its acquisition deal anytime soon if its offer price remains at RM2.56 per share for MBMR.

Sources tell The Edge that the dissenting minority shareholders, holding a 48% stake in Med-Bumikar, are withdrawing their legal action in the Kuala Lumpur High Court.

It is learnt that shareholder talks are ongoing and the withdrawal may signal an agreement between the two opposing sides is imminent.

That said, sources reveal that the withdrawal was done with liberty to file afresh, indicating that the situation remains fluid.

Filed on April 25, the legal action had, among others, sought a court order to stop any attempt to sell Med-Bumikar’s 50.07% stake in MBMR to UMW.

It also sought an order that the majority faction buy out the 48% side from Med-Bumikar, subject to an independent valuation of the company.

To recap, UMW offered RM2.56 per share, or RM501 million, for the stake in early March. The prize in its sights is control over national car maker Perusahaan Otomobil Kedua Sdn Bhd (Perodua), in which MBMR has 22.58% equity interest.

Controlling MBMR would, in turn, allow UMW, which already has a 38% stake in Perodua, to gain majority control over the carmaker. UMW has said it intends to privatise MBMR.

Med-Bumikar’s board, which is controlled by the minorities, has rejected the offer as too low and viewed RM3.68 — MBMR’s net tangible asset value per share — as a fairer price.

The withdrawn suit was one of two parallel legal actions in the Kuala Lumpur High Court.

The other suit was filed by the opposing faction on April 30, seeking to change the composition of Med-Bumikar’s board in favour of the majority shareholders. It is scheduled for the first case management hearing on May 14.

The majority shareholders, holding about 52%, comprise Majlis Amanah Rakyat (29%) and the Looi and Wong families.

 

Seeking higher price

Board control is critical for both sides within Med-Bumikar as accepting or rejecting any offer, such as the UMW proposed acquisition, is still up to the company’s board to decide.

However, what is clear is that both factions are seeking a higher offer price from UMW as pursuing a better deal had been a common denominator throughout the dispute.

This means that if the Med-Bumikar shareholders come to an out-of-court compromise, the consensus will likely be to ask UMW to raise its offer price.

In an extraordinary general meeting on April 30, the majority shareholders passed two resolutions, including one stating conditional acceptance of the UMW offer, with 52% majority.

The other resolution sought to appoint two new directors to the Med-Bumikar board — Muhamad Zaki Jali and Wong Fay.

The remaining 48% had walked out of the meeting after protesting its validity.

Alongside the resolutions, the majority faction had urged the Med-Bumikar board to form a committee to negotiate further with UMW on its offer. It is understood that while this faction may not share the other side’s desire for a RM3.68 per share offer price, the current offer of RM2.56 per share is also deemed unsatisfactory.

The majority faction has also indicated that it is more willing to engage UMW further on the offer compared with the board’s two outright rejections of the offer previously.

It is worth noting that the majority faction’s April 30 suit had challenged the recent appointment of Datuk Mohd Ridzuan and Sharifuddin Shoib to the Med-Bumikar board.

The suit had argued that the appointments via a circular resolution was improper and baseless as neither of them is a Med-Bumikar shareholder.

Court documents sighted by The Edge indicate that if Zaki and Wong replace Mohd Ridzuan and Sharifuddin on the board, the composition of directors would tilt in favour of the majority faction.

Over at UMW, getting the group to raise its offer price for the 50.07% stake in MBMR further may be a tough ask.

In a previous interview, UMW president and group chief executive Badrul Feisal Abdul Rahim told The Edge that the group is “unlikely” to raise its offer price, which UMW deems as “fair”.

Sources familiar with UMW’s thinking indicate that the group’s stance on its offer price has not changed. This sets up another potential snag should the Med-Bumikar shareholders’ tussle find a compromise soon.

At the time of writing, Badrul did not respond to requests for comment.

UMW did not budge when Med-Bumikar’s board rejected its offer for the first time on March 26.

Instead, UMW extended the offer validity to April 30 and later to Oct 30 without changing its offer price, simply saying it will continue to engage the stakeholders.

The unusually lengthy second extension — a six-month addition to the offer validity period — signals that its pursuit of Perodua will take a long while to sort out.

Med-Bumikar aside, the difficulties also lie in convincing Daihatsu Motor Co, Perodua’s 30% shareholder and technological partner, to support its proposed takeover.

Perodua shareholders have the right of first refusal if any shareholder wishes to sell. Daihatsu is the only shareholder not involved in the web of transactions proposed by UMW.

To recap, UMW also proposed to buy a 10% stake in Perodua held by its majority shareholder, Permodalan Nasional Bhd, for RM417.5 million.

In a March 22 letter to UMW sighted by The Edge, Daihatsu stated that it will not support the proposed shareholding change in favour of UMW, saying the status quo has benefited Perodua since its establishment in the early 1990s.

Daihatsu also urged UMW to reconsider its takeover bid and warned that it may withdraw from the technological partnership with Perodua as a last resort to address the issue.

 

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