This article first appeared in The Edge Malaysia Weekly on April 23, 2018 - April 29, 2018
THE delayed disclosure of a change in Lysaght Galvanized Steel Bhd’s ultimate holding company has raised eyebrows. The traffic pole and mast maker has been embroiled in a family tussle since patriarch Chew Kar Heing died in February 2014.
On April 4 this year, Lysaght announced that following the consolidation of shareholding, CKH and LIK Family Sdn Bhd had emerged as its ultimate holding company with an aggregate stake of 74.2% in Chew Bros (M) Sdn Bhd.
This announcement came after CKH and LIK Family had surfaced as a substantial shareholder of Lysaght with an indirect stake of 55.14% in December last year.
The four-month gap between the dates of the shareholding change and disclosure has cast a shadow on Lysaght’s corporate governance record while management’s silence on whether the change in ultimate holding company warrants a mandatory general offer (MGO) has given rise to all kinds of speculation.
To recap, Lysaght is 55.14%-controlled by Lysaght (M) Sdn Bhd (LMSB), which is 51.63%-owned by Chew Bros. CKH and LIK Family, meanwhile, holds 74.2% of Chew Bros (see shareholding chart).
In other words, LMSB is Lysaght’s immediate holding company while Chew Bros is its intermediate holding company. CKH and LIK Family is its ultimate holding company.
A filing with the Companies Commission of Malaysia shows that CKH and LIK Family is jointly owned by Annie Chew Meu Jong — the eldest daughter of Kar Heing — her mother Lim Iee Kuan, her daughter Deborah Ho Mun Sook and her uncle Chew Kar Hoo.
According to filings with Bursa Malaysia last December, CKH and LIK Family was deemed interested in Lysaght after the estate of Kar Heing and his widow Iee Kuan transferred to the former their stakes — 22.8% and 8.6% respectively — in Chew Bros. This raised CKH and LIK Family’s stake in Chew Bros from 42.8% to 74.2%.
Some quarters believe an MGO would have been triggered as CKH and LIK Family now controls Chew Bros, and in turn LMSB and Lysaght.
However, legal sources tell The Edge that in Lysaght’s case, the change in ultimate holding company does not trigger an MGO as it involves the transfer of inherited shares.
According to Paragraph 4.13 of Malaysia’s Rules on Takeovers, Mergers and Compulsory Acquisitions, the Securities Commission Malaysia (SC) may grant an exemption to a person who inherits voting shares in an offeree from a spouse or close relative without any consideration where the beneficiary will trigger a mandatory offer obligation.
The SC normally grants an exemption in a transaction involving the introduction or elimination of an intermediate company in which there is no change in the ultimate shareholders or if the transaction is between an individual, his spouse, his close relatives and related trusts, and companies controlled by him.
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, sparked a debate on whether the share purchase had triggered an MGO for Lysaght.
Back then, Chew Bros had raised its stake in LMSB from 40% to 51.63% after acquiring an 11.63% stake from Singapore-listed United Engineers Ltd (UEL).
It is believed that 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”.
Legal advisers note that Lysaght avoided an MGO at the time because Chew Bros and UEL were considered as persons acting in concert (PAC). “Actually, Chew Bros has always been in control of the company and UEL has always been with Chew Bros. This can easily be reinforced through their voting patterns,” says a legal source.
According to Section 216 (2) and (3) of the Capital Markets and Services Act (CMSA), “persons acting in concert” shall be construed as a reference to persons who cooperate to acquire jointly or severally voting shares for the purpose of obtaining or exercising control over a company.
Besides, the Rules on Takeovers, Mergers and Compulsory Acquisitions state that in considering the application for exemption, the factors that the SC will take into account include whether the leader of the group or the largest individual shareholding has changed and whether the balance between the shareholdings in the group has changed significantly.
Other factors are the price to be paid for the voting shares of the offeree and the relationship between the PAC and how long they have been acting in concert.
“One might argue that the PAC may not be permanent but the regulator could only look at the past and present; they could not predict the future. If you look at the structure of LMSB, Chew Bros has always led LMSB because UEL, which has a smaller stake, has always been acting in concert with Chew Bros. Therefore, even if Chew Bros has acquired UEL’s stake, there is no change in control as the leader remains the same,” says another legal adviser.
As talk of a possible MGO at Lysaght does not look likely to end, perhaps the relevant parties should come forward to shed some light on the matter.
It may be obvious to legal advisers as to whether or not an MGO was triggered but the company should not assume its minority shareholders will know.
Even if the share transactions were made at the holding company level, management may want to communicate that to its shareholders.
“For better corporate governance and as responsible major shareholders, they should willingly disclose more than what is required by law,” says a corporate observer. “A shareholding change prompted MGO talks at Lysaght in 2016 and they have resurfaced this year. It would be advantageous to them if they explained the matter before someone raised the subject.”
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