KUALA LUMPUR: The rejection of Sime Darby Bhd's application for the Employees Provident Fund (EPF) to vote on the estimated RM5.84 billion takeover of UMW Holdings Bhd is surprising as a similar request, albeit in a different industry, was approved last year, say industry observers.
They believe that the rejection by Bursa Malaysia is to safeguard the interest of minority shareholders.
However, they see little to no risk to Sime Darby's bid to get shareholders' approval at an extraordinary general meeting (EGM) next week.
Tradeview Capital fund manager Neoh Jia Man said Bursa had previously given the green light to a similar application by Malaysia Building Society Bhd (MBSB) to take over Malaysian Industrial Development Finance (MIDF).
"The rejection comes as a surprise to us, given that Bursa approved a similar request in the MIDF deal last year. Nevertheless, we do not believe that it will be significant enough to derail the UMW Holdings deal," said Neoh.
He said the rejection was to ensure that the minority shareholders would have a stronger influence on the deal.
"The EPF is the second largest shareholder in Sime Darby after Permodalan Nasional Bhd (PNB) with a 15 per cent stake and it is likely to determine the outcome of the deal. Since the two entities have engaged in several joint ventures, it would be prudent to avoid any perception of a conflict of interest," said Neoh.
In a filing with Bursa Malaysia on Nov 7, Sime Darby said its application for a waiver from categorising the EPF and PNB as "persons connected" to the deal, and allowing EPF to exercise its voting rights at the EGM scheduled on Nov 16, was rejected.
A similar request was made by MBSB on July 8 last year with regards to its acquisition of the entire stake in MIDF from PNB for RM1.01 billion, via issuance of new shares at 96.52 sen apiece.
The deal, which was completed on Oct 2 this year, saw 1.05 billion new shares allotted to PNB, making it MBSB's substantial shareholder with a 12.78 per cent stake.
The EPF's shareholding in MBSB was diluted to 57.45 per cent from 65.78 per cent previously.
MBSB had sought two waivers from Bursa as it noted that pursuant to a commercial agreement between PNB and EPF, the former might be deemed a related party to the EPF.
It had requested a waiver from categorising EPF and PNB as persons connected to the deal and for the exercise to not be regarded as a related party transaction (RPT).
Although the application was initially rejected on Aug 12 last year, Bursa gave conditional approval for the waiver following an appeal by MBSB.
In an email reply to Business Times, Bursa clarified that as per its listing requirements, a transaction would be regarded as RPT when a listed company or its subsidiaries proposed to enter into a transaction that involved the interest, direct or indirect, of a related party.
"For cases involving RPT, the interested related party must abstain from board deliberation and voting on the shareholder resolution in respect of the RPT. In addition, the interested related party must not vote on the shareholder resolution in respect of the same RPT at the general meeting," said Bursa.
The RPT framework was established to govern "potential conflict of interest situations", particularly to protect minority shareholders' interests, it added.Minority Shareholders Watch Group chief executive officer Devanesan Evanson also viewed the rejection as a way to safeguard the minority shareholders.
"Persons deemed connected in a proposal should refrain from voting on that proposal. Bursa Malaysia, as the frontline regulator, is entitled to make its own determination on rules and regulations affecting public-listed companies," he added.
On Aug 24, Sime Darby announced that it entered into a conditional share purchase agreement to acquire PNB's 61.2 per cent stake in UMW Holdings for RM3.57 billion, or RM5 per share.
Once the agreement becomes unconditional, Sime Darby will be making a general offer for the remaining 38.8 per cent stake that it does not hold, with the aim of delisting UMW Holdings from Bursa.
Meanwhile, Neoh said the takeover was a "sound deal" for Sime Darby due to the expected strategic benefits.
"It is expected to enhance the company's earnings from day one. Therefore, we see no reason for minority shareholders to reject the proposal," he added.
At closing bell on Friday, Sime Darby's share price slipped four sen or 1.68 per cent to RM2.34 while UMW gained one sen or 0.21 per cent to RM4.87.
Since Sime Darby's announcement on the acquisition, its share price rose 23 sen from RM2.11. UMW saw its share rose 25 sen from RM4.62.