Newsbreak: Tide turns in UMW’s takeover bid for MBM Resources

This article first appeared in The Edge Malaysia Weekly, on April 23, 2018 - April 29, 2018.
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MALAYSIA’s automotive industry may be in for a watershed moment. On April 30, shareholders of Med-Bumikar Mara Sdn Bhd will attend an extraordinary general meeting (EGM) to vote on an offer by UMW Holdings Bhd to buy the former’s 50.07% stake in listed automotive group MBM Resources Bhd.

Sources familiar with the situation tell The Edge that shareholders holding equity interest amounting to 52% of Med-Bumikar are poised to vote in favour of the offer. Among them are Majlis Amanah Rakyat (Mara), which has a 29% block, and the Looi and Wong families. There are six families holding stakes of between 11% and 13% each in Med-Bumikar.

It is learnt that several weeks ago, the families opposed to the takeover bid had offered to buy out fellow shareholders at a similar valuation.

However, it appears that UMW’s offer will prevail. The Edge understands that Med-Bumikar shareholders have right of first refusal should any shareholder wish to exit the company.

A back-of-the-envelope calculation indicates that the counter-offer could work out to about RM145 million for Mara and at least RM55 million each for the Looi and Wong families.

UMW’s pursuit of a majority stake in MBM Resources has attracted much public interest. At stake is ultimate control of national carmaker Perusahaan Otomobil Kedua Sdn Bhd (Perodua), in which MBM Resources has a 22.58% stake.

UMW already has 38% equity interest in Perodua and taking a 50.07% interest in MBM Resources would mean the conglomerate will have control over the national carmaker.

Also by April 30, PNB Equity Resource Sdn Bhd — a subsidiary of Permodalan Nasional Bhd (PNB) — is slated to decide on a RM417.5 million offer by UMW to acquire its 10% stake in Perodua.

If the companies accept UMW’s offer, it would end a decades-long arrangement whereby no single shareholder has majority control of the national carmaker. Perodua would become one of PNB investee companies via UMW. PNB is the majority shareholder of UMW and is understood to be backing the takeover bid.

To recap, on March 9, UMW announced that it had offered Med-Bumikar RM2.56 for each MBM Resources share, which was at a 16.36% premium to its market value. However, the board of Med-Bumikar rejected the offer, saying that the stake was undervalued.

In an interview with The Edge, Med-Bumikar executive chairman Datuk Abdul Rahim Abdul Halim indicated that MBM Resources’ net tangible assets per share of RM3.68 would be a fairer price.

In response to the rejection, UMW said on March 26 that it would extend the deadline for acceptance from March 28 to April 30.

While UMW did not raise the offer price, it said it would continue to engage various stakeholders, including Med-Bumikar shareholders.

However, gaining the acceptance of the shareholders is only the first hurdle for UMW to overcome.

In a past interview, Abdul Rahim told The Edge that Perodua shareholders have right of first refusal when any shareholder wishes to exit the company. When Med-Bumikar sought to transfer its stake in Perodua to MBM Resources back in 1999, it had to obtain the consent of the other shareholders. Also, one of the stated conditions is that MBM Resources must remain under Med-Bumikar’s control.

Thus, UMW may need to obtain the consent of other Perodua shareholders to complete the acquisition.

Given that UMW has 38% equity interest and its majority shareholder PNB has 10%, the potential deal-breaker could be Daihatsu Motor Corp, which controls 30% of Perodua.

Sources tell The Edge that Daihatsu has expressed in writing its unhappiness over the possible takeover and warned that it might review its involvement with the national carmaker.

UMW would have to tread carefully as Daihatsu is Perodua’s technological partner and retains control over the carmaker’s manufacturing units.

In an April 18 statement, the Perodua Labour Union objected to the proposed takeover on the grounds that it would hurt the interests of its 7,841 members.

It also claimed the proposed takeover could risk upsetting Daihatsu and lead to the Japanese firm pulling out. That said, Daihatsu is part of the global Toyota group, which is UMW’s longstanding automotive partner. This, some analysts believe, could persuade Daihatsu to give the takeover exercise the nod.

In any case, what is clear is that further challenges remain in UMW’s bid to gain majority control over Perodua.

 

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