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'Victory' for Malaysia corporate governance complicates three-way merger plans [CPI Financial](CPI Financial Via Acquire Media NewsEdge) The proposed merger between CIMB Group, RHB Capital and Malaysia Building Society has been thrown into confusion by a ruling from Bursa Malaysia blocking the state pension fund Employees Provident Fund (EPF) from influencing the outcome. Shares in the three groups were suspended on Tuesday, 21 October, ahead of the announcement by the Bursa and resumed trading on Thursday, 23 October (the market in Kuala Lumpur was closed for the Deepavali holiday on Wednesday, 22 October). The EPF, which is in favour of the deal, holds a 14.6 per cent stake in CIMB Group, 41.5 per cent of RHB Capital and 64.5 per cent of Malaysia Building Society. The firms had been seeking a waiver of Bursa regulations that would require the EPF to abstain from voting at the shareholders' meetings for the proposed merger. That request has been rejected, there being 'no adequate justifications that the potential conflict of interests involving EPF has been eliminated or sufficiently mitigated' according to the exchange authorities. In arriving at its decision, Bursa Securities took into consideration the following: The objective of the related party transaction framework under the Listing Requirements is to govern potential conflict of interest situations. In related party transactions, related parties may be able to assert influence over a listed issuer's actions or transactions which then present a risk of potential abuse to the listed issuer. By virtue of EPF being the common major shareholder in all three (3) affected companies (i.e. MBSB, RHB Capital and CIMB Group) as well as being the single largest shareholder of both MBSB and RHB Capital, there exists such a potential conflict of interest situation, where EPF may be able to influence the Proposed Merger to its own benefit; and EPF's position is not the same as the other shareholders of MBSB premised on the following: controlling stakes in MBSB (64.5 per cent) and RHB Capital (41.5 per cent) place it in a position of significant influence in these companies; As the single largest shareholder of MBSB and RHB Capital and a major shareholder in CIMB Group, EPF may benefit from the transaction as a shareholder of RHB Capital and/or CIMB Group. As such, its overall position would differ from a party who is merely a shareholder of MBSB, especially given the differing terms and valuations applicable to these three affected companies; and EPF had prior knowledge of the Proposed Merger as it was notified by CIMB Group before the issuance of the letter of intent by CIMB Group dated 9 July 2014. The structure of the deal is widely seen to have been put together in such a way as to head off potential objections from Abu Dhabi's Aabar Investments, second-largest shareholder in RHB Capital with a 21.2 per cent stake. With EPF allowed to vote, the success of the deal would effectively have been assured. That is no longer the case. While many will applaud the Bursa decision as a victory for corporate governance, it may well send the three groups back to the drawing board to find ways to ensure that minority shareholders, who now find themselves in positions of much greater influence, are fully on board with the proposed merger. It has been estimated that if the merger does go ahead it will create Malaysia's largest and Southeast Asia's fourth biggest bank with assets of some $190 billion and a market capitalization of around $22 billion. Following the merger CIMB shareholders would own 70 per cent of the enlarged bank. (c) 2014 CPI Financial. All rights reserved. Provided by SyndiGate Media Inc. (Syndigate.info). [ Back To TMCnet.com's Homepage ] |