This article first appeared in Corporate, The Edge Malaysia Weekly, on May 2 - 8, 2016.

THE disagreement among board members of Lysaght Galvanized Steel Bhd (Lysaght) over the identity of its ultimate holding company — Lysaght (M) Sdn Bhd (LMSB) or Chew Bros (M) Sdn Bhd — is the latest turn of events in this corporate family saga. The outcome of this episode could lead to a mandatory general offer (MGO) at Lysaght further down the road.

Last Wednesday, Liew Hoi Foo resigned as the managing director of Lysaght, after 13 years at the low-profile traffic pole maker.

He has, nevertheless, consented to be appointed the CEO of the company effective from April 27, until May 31, to facilitate the smooth handover of duties. His duties as CEO are essentially the same, except that he is no longer a member of the board.

Interestingly, the announcement of Liew’s impending departure came a week after his sister-in-law, Annie Chew Meu Jong, notified the company that she was no longer a substantial shareholder in Lysaght as she “realised” that her position as managing director of Chew Bros does not deem her to hold equity interest in LMSB. Meu Jong is the daughter of Lysaght’s late founder, Chew Kar Heing.

Apart from that, the filing with Bursa Malaysia on this matter merely says a grant of probate was obtained on July 10 last year and Kar Heing’s shares went to his estate.

To date, Meu Jong remains as a non-independent non-executive director of Lysaght.

LMSB is the controlling shareholder of Lysaght with a 55.14% stake while Chew Bros is the single largest shareholder of LMSB with a 40% stake. The shareholding structures of Lysaght and LMSB clearly show that whoever controls the latter will eventually control the former.

To recap, Lysaght made the headlines two years ago when Liew and Meu Jong were said to have been involved in a family feud after the passing of Kar Heing in February 2014.

However, after the annual general meeting on June 30 last year, Meu Jong issued a statement to refute rumours that Lysaght was embroiled in a shareholder tussle, adding that differing views are healthy in any successful business.

“As some would like to feed on the perceptions of power struggle and family feud, this is a non-event,” she had said.

Nevertheless, the sudden resignation of Liew last week and the puzzling notification by Meu Jong two weeks ago that she had ceased to be a substantial shareholder in Lysaght seem to have brought to the open a rift between the two.

The question remains whether Chew Bros had bought an 11.63% stake in LMSB from United Engineers Ltd (UEL). If so, it will trigger an MGO at Lysaght.

LMSB was originally owned by nine parties, including UEL and the Chew family, which holds 40% equity interest through Chew Bros (helmed by Meu Jong).

Liew has a 17.1% stake in LMSB through WTWT Sdn Bhd. He also owns a direct 15.46% stake in Lysaght through Ingli Sdn Bhd (see chart).

The Edge reported on Jan 11 that a shareholding change in LMSB could spark a debate on whether an MGO would be triggered at Lysaght, after UEL confirmed that it had sold its entire 11.63% stake in LMSB.

However, UEL declined to name the buyer. But it is worth noting that the Singapore-listed firm had signed a sales and purchase agreement with Chew Bros in April 2014, although it is not clear if it was executed.

According to the official website of the Federal Court, Liew and Meu Jong were involved in a legal battle over Chew Bros’ move to buy UEL’s 11.63% stake in LMSB.

The court’s judgement document dated Jan 8, 2015, shows that UEL had in March 2014 given notice to LMSB that it would like to sell all its shares “at a certain value” based on LMSB’s net assets as at Dec 31, 2013.

In April 2014, Chew Bros and UEL signed a sales and purchase agreement. Claiming that the transfer of shares was “invalid”, Liew then took Chew Bros, UEL and LMSB to court.

However, High Court judicial commissioner Datuk Wong Kian Kheong eventually ruled in favour of the defendants, saying that the LMSB offer “has been lawfully made”.

In October 2014, Meu Jong told The Edge in an interview that UEL’s stake in LMSB was up for sale, but she declined to reveal if Chew Bros was eyeing it.

When asked whether Chew Bros was interested in increasing its stake in LMSB, Meu Jong replied, “Maybe, maybe not. There is no commitment. Nothing much is happening. We have to wait and see.”

Hypothetically, if the block of LMSB shares had been sold to Chew Bros, its holding would have increased to 51.63%. Some quarters believe the Chew family’s investment vehicle would then be obliged to make an MGO for 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 to a person who intends to obtain or has obtained control in an upstream entity, which 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.

The code seems to apply in Lysaght’s case, as LMSB and Lysaght could be deemed the above-mentioned “upstream entity” and “downstream company” respectively.

All this while, Meu Jong has never denied that Chew Bros had acquired the 11.63% stake in LMSB.

Now, the reason for Liew’s resignation seems obvious. He and the board of directors do not see eye to eye on the identity of Lysaght’s real controlling shareholder. According to the Bursa announcement on his resignation as managing director on April 27,  Liew, “claiming personal knowledge, insists that LMSB is no longer the ultimate holding company”.

According to the directors’ report in Lysaght’s Annual Report 2015, the directors, to the best of their knowledge, still regard LMSB — the immediate holding company — as the “ultimate holding company”, based on publicly available corporate information provided by LMSB.

It is believed that Liew saw Chew Bros as the “ultimate holding company”, although he did not specify that in the Bursa announcement on April 27.

Note that in the 2015 annual report released last Friday, it is stated that “as of date, the directors have not received any formal notification of any change in this status” — that is, a change in the ultimate holding company. The April 27 announcement to Bursa also says all the independent directors of Lysaght are not privy to the affairs of LMSB.

In other words, they do not actually disagree with Liew that LMSB is no longer the ultimate holding company of Lysaght but are not prepared to accept Liew’s argument without a written notification.

The identity of the ultimate holding company is important in this case because the immediate holding company has always been LMSB, and anyone controlling it should become the ultimate holding company and, hence, trigger the upstream takeover.

A quick check on the website of the Companies Commission of Malaysia reveals that Liew (until April 27), Meu Jong and Chua Tia Bon are common directors of Lysaght and LMSB. This means that the three are privy to the affairs of both companies. But why is Liew the only one insisting there has been a change in the control of LMSB?

What about Meu Jong and Chua? If they are aware of the change in control of LMSB, why didn’t they give formal notification of the change to Lysaght?

Is the latest development a step closer to an MGO at Lysaght? Minority shareholders will be interested to know.

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