This article first appeared in The Edge Malaysia Weekly on January 15, 2018 - January 21, 2018

DEBATE on a possible mandatory general offer (MGO) at Lysaght Galvanized Steel Bhd has resurfaced as Annie Chew Meu Jong — eldest daughter of the group’s founder Chew Kar Heing — tightens her grip on the Bursa Malaysia-listed manufacturer of traffic poles and masts.

Lysaght made the headlines in 2014 when Meu Jong and her brother-in-law, Liew Hoi Foo, became embroiled in a family tussle after patriarch Kar Heing died in February that year at the age of 81. Liew, who was Lysaght’s managing director between 2004 and 2016, is married to Meu Jong’s sister Mary Chew Mee Lee.

To put things into perspective, Lysaght is 55.14%-controlled by Lysaght (M) Sdn Bhd (LMSB), which is 51.63%-owned by Chew Bros (M) Sdn Bhd (see shareholding chart). In other words, LMSB is the immediate holding company of Lysaght, whereas Chew Bros is the ultimate holding company of the listed firm. The shareholding structure clearly shows that whoever controls LMSB will eventually control Lysaght.

However, a new ultimate holding company seems to have surfaced at Lysaght last December, with CKH and LIK Family Sdn Bhd emerging as a substantial shareholder with a 55.14% stake. According to a series of filings with Bursa Malaysia, CKH and LIK Family is deemed interested in Lysaght following a transfer of shares in Chew Bros by the estate of Kar Heing and his widow Lim Iee Kuan. The estate and Iee Kuan ceased to be substantial shareholders of Lysaght after the transfer of stakes of 22.8% and 8.6% respectively.

It is worth noting that CKH and LIK Family had been the single largest shareholder of Chew Bros with a 42.8% stake, held through its wholly-owned subsidiary, Chew Kar Heing Sdn Bhd. Following the transfer of shares, CKH and LIK Family now holds a 74.2% stake.

The new shareholding structure show that CKH and LIK Family has taken control of Chew Bros and, hence, LMSB and Lysaght.

The question is, who will benefit the most from such a development?

A quick check with the Companies Commission of Malaysia shows that CKH and LIK Family is jointly owned by Meu Jong, her mother Iee Kuan, her daughter Deborah Ho Mun Sook and uncle Chew Kar Hoo.

It is worth noting that Meu Jong, 62, is the managing director of Chew Bros as well as a director of Lysaght, LMSB, ChewKarHeing Sdn Bhd and CKH and LIK Family. According to Lysaght’s annual report 2016, she has been managing LMSB’s operations in Australia — investment holding of real estate — in the last 30 years. She had also been assisting her late father in running LMSB’s businesses since 2009.

It appears that in his will, Kar Heing wished to transfer his 22.8% stake in Chew Bros to CKH and LIK Family. In fact, it is learnt that Mun Sook’s 25% stake in CKH and LIK Family was initially owned by her late grandfather.

While it seems that the transactions were executed according to Kar Heing’s will, certain quarters are of the view that a mandatory general offer would have been triggered as CKH and LIK Family had raised its stake in Chew Bros to above 50%.

“CKH and LIK Family may have a similar group of shareholders to that of Chew Bros, but technically speaking, it is still a separate legal entity,” says a corporate observer. “You are the controlling shareholder of a company once your shareholding exceeds 50%, so the moment you transfer the shares, an MGO would be triggered.”

Talk of an MGO first surfaced two years ago

Interestingly, this is not the first time Lysaght has been subject to talk of a possible MGO. In January 2016, The Edge reported that a shareholding change in its controlling shareholder LMSB had sparked a debate on whether the share purchase had triggered a MGO for the latter.

LMSB was originally owned by nine parties, including Singapore-listed United Engineers Ltd (UEL) and the Chew family, which had 40% equity interest through Chew Bros.

Liew has a 17.1% stake in LMSB through WTWT Sdn Bhd. He also holds a direct 15.46% stake through Ingli Sdn Bhd.

Meu Jong and Liew are said to have been involved in a tussle at LMSB to gain control of Lysaght for the past four years.

With UEL’s sale of its entire 11.63% stake in LMSB to Chew Bros, the single largest shareholder’s stake has increased to 51.63%.

Some quarters believe the Chew family’s investment vehicle would then be obliged to make an MGO to Lysaght, pursuant to Practice Note 9 (PN9) of the Malaysian Code on Take-Overs and Mergers 2010 under “acquisition of a company through an upstream entity”.

According to Paragraph 4.1 of PN9, a mandatory offer applies if a person intends to obtain or has obtained control in an upstream entity that holds more than 33% of the voting shares of a downstream company, and the upstream entity has a significant degree of influence in the downstream company.

Paragraph 4.2 of PN9 reads: “The upstream entity is deemed to have a significant degree of influence in the downstream company when the acquisition of the upstream entity to which the code does not apply is a means to acquire control in the downstream company to which the code applies.”

The code seems to apply in Lysaght’s case, as LMSB and Lysaght could be deemed as the above-mentioned “upstream entity” and “downstream company” respectively. Furthermore, Lysaght contributes more than 50% of the assets, sales or earnings of LMSB, which meets another criterion set in Paragraph 4.2.

In November 2016, Lysaght said it had received on behalf of Chew Bros a notification from Mercury Securities Sdn Bhd informing that the Securities Commission, after having examined the facts and circumstances surrounding the acquisition of UEL’s 11.63% stake in LMSB, had determined that no further action was required in this matter.

No reason and further explanation were given.

If the Chew Bros-LMSB case two years ago serves as precedent, the CKH and LIK Family-Chew Bros case is no doubt weak. However, it is important to note that the rationale of a MGO is to provide an opportunity for the minority shareholders to exit the company when there is a change of management, which could result in a change of business direction.

Simply put, it is a rule that protects the interests of minority shareholders.

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