final private

8/2/2019 Final Private

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INDIVIDUAL ASSIGNMENTS

Zczc Securities Laws

Going Private and Impact to minority

shareholders in Malaysia

Prepared For: Associates Prof Dr Hasani bin Mohd Ali

Prepared By: Zaimah Binti Mohd Nor- ZP00361


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1.0 INTRODUCTION

1.1BackgroundPrivatisation of Malaysias public listed companies was a relatively new phenomena

and/or trend that started in 2006 and picked up speed in 2007 throughout 2008. The

number of public listed companies going private has increased sharply in recent years.

Since the beginning of 2007, there was a series of privatisation of public listed

companies on our local bourse, Bursa Malaysia. In that year, there were more than 20

companies going public.

Privatization of these companies signals a very mature and robust financial market, with

a favourable credit market. Due to privatisation, some RM46.29 billion has been wiped

out from Bursa Malaysia's market value in the first half of the year as 17 firms were

taken private, a stock exchange official said. The cycle of privatisation will turn when

interest rate goes up and companies find it more expensive to raise funds from the credit

market. Selvarany Rasiah, Chief Regulatory Officer of Bursa Malaysia. [1]

The privatisation continued through 2008 with 21 privatisation proposals on the Bursa

Malaysia. The owners of the companies also vary from the likes of government linked

investment companies such as PNB, the government investment arm Khazanah, as well

as companies owned by local tycoons or are family-controlled. The most common reason

for a company going private is when the owner(s) believe that the share price of the

company is too low, hence not reflecting its fundamental value. [2]

Recently, the number of companies going public is quite similar to the number of IPO.

There were 13 companies have been listed on the Main Market of Bursa Malaysia since

last October to April this year while more than 10 Main Market companies received

privatization proposals in that same duration. According to Aberdeen Asset Management

Sdn Bhd managing director Gerald Ambrose, he said that a reason for the slew of

privatization was because those stocks were trading at valuation discounts in comparison

to regional peers. [3]


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2.0Definition of going privateGoing private transactions describe the process of private equity firms, major

shareholders, management, or affiliates of a publicly held company taking the company

private by buying out the publics stockholdings.

In Malaysia going private transaction typically encompasses:

a) the drastic alteration in the ownership structure of the public company ; andb) the removal from the official list of the Bursa Malaysia Securities Berhad (Bursa

Malaysia) where the company is listed.

3.0Why Are Public Listed Companies Going Private?There are many reasons why public listed companies going private. They are as follows:

3.1 Ability to raise funds in the public market can be outweighed by the costsinvolved in complying with the company and securities law requirements.

Listed companies are subject to the myriad of rules and regulations imposed by

Bursa Malaysia in the form of the Bursa Malaysia Listing Requirements (the

Listing Requirements) as well as regulations and guidelines administered by the

Securities Commission (SC). The Listing Requirements impose requirements

for shareholders, board and regulatory approval in respect of certain transactions,

continuing disclosure obligations, related party prohibitions and quarterly tests on

earnings of listed companies. As a result, particularly in the case of small to

medium size companies, it is perceived that the advantages or value associated

with the ability to raise funds in the public market can be outweighed by the costsinvolved in complying with the company and securities law requirements. Below

is the Bursa guidelines listing requirement which compulsory to comply if the

company is a public listed that need high cost:-

3.1.1 The Bursa Listing RequirementsBelow are the guidelines for Public listed Company under Bursa

Malaysia Listing Requirement for public listed companies which hadto adhere to, compulsory:-


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a) Under Chapter 9 of the Bursa Malaysia Listing Requirements which

sets out the continuing disclosure requirements that must be

complied with amongst others, by a listed company, its directors

and advisers.

9.02 - Corporate Disclosure Policy

b.03- Immediate disclosure of material

b) Chapter 10 of the Bursa Malaysia Listing Requirements which sets

out the requirements that must be complied with in respect of

transactions entered into by the listed company.

10.04 - Requirements in the case of transactions exceeding 5%

10.05 - Requirements in the case of transactions exceeding 15%

10.06 - Requirements in the case of transactions exceeding 25%c) In terms of disclosure to or informing the public, the Bursa

Malaysia Listing Requirements requires a listed company to make

immediate announcements of all information which wouldreasonably be expected to have a material effect on the price, value

or market activity of the listed company. In addition, the listed

company is required to make immediate announcements of a

transaction (as defined in under Chapter 10 of the Listing

Requirements), where the percentage ratio is equal to or in excess

of 5%. A company is required to issue a circular to its shareholders

by setting out the information e transaction if the percentage ratio

of the transaction is equal to or exceeds 15%. Subsequently, the

listed company must seek an approval from its shareholders if the

percentage ratio of the transaction is equal to or in excess of 25%.

In the case of related party transactions, a listed company is

required to make an immediate announcement regardless of the

percentage ratio and it must seek an approval from its shareholders

if the percentage ratio is equal to or exceeds 5%.


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Looking to the above requirements set by SC, the rules can be a burden to

public listed companies. The ability to raise funds in the public market can

be outweighed by the costs involved in complying with law requirements.

That is why certain companies in Malaysia chose to going private.

3.2 Ability to make decision without losing precious timeSuch requirements imposed on listed companies leave the companies with little

breathing space and make it difficult for companies to make major decisions such

as expanding overseas, acquiring new businesses or obtaining new shareholders

without losing precious time in these pursuits. By going private, the companys

major shareholders are able to focus on taking bigger strategic risks in order to reap

long-term profits without facing intense scrutiny of public shareholders and being

constrained by the need to consider how a proposed transaction might affect the

quarterly earnings or the volatility of the share price of the company.

3.3 Opportunities and Advantages AbroadApart from the push factor above, there are also attractive pull features of other

stock exchanges in terms of market diversity and activity. Notwithstanding the

recent flurry of activity on Bursa Malaysia over the last year, statistics compiled by

Bursa Malaysia have suggested that the previous lacklustre state of the market may

have caused listed companies to set their sights on other more exciting markets in

the region such as Singapore and Hong Kong as well as sub-markets such as the

London Alternative Investment Market (AIM) which is generally perceived as

more flexible and imposes less regulatory burdens.

3.4 Bring the share price close to the companys intrinsic valueThe most common reason for a company going private is when the owner(s)

believe that the share price of the company is too low, hence not reflecting its

fundamental value. By privatising, it is hoped that the price can be brought closer

to the companys intrinsic value. According to Aberdeen Asset Management Sdn

Bhd managing director Gerald Ambrose, he said that a reason for the slew of

privatization in Malaysia was because those stocks were trading at valuation

discounts in comparison to regional peers.


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3.5 Protection from takeoverOwners of company may also consider privatising their companies as a protection

measure against takeover attempts. The procedure to take over a private company

is different to take over a public listed company.

3.6 Owner enjoy high and stable earningSome owners they want to enjoy high and stable earning through going private. In

the case of Maxis, the company was taken private as the owners visions on the

companys business expansion differ from the objectives of investors, who may be

more keen in receiving high, stable dividend income.

3.7 To enhance the groups earnings performance and create greater synergiesPrivatisation exercises involving holding companies buying out their subsidiaries

such as the privatisation of E&O Properties Bhd and Boustead Properties Bhd were

intended to enhance the groups earnings performance and create greater synergies.

3.8 Protected from the exposure to stock market fluctuationsBy going private, the company can avoid the exposure to the market fluctuations

3.9 Lack of analyst coverageLake of analyst coverage for some companies (e.g. small and mid-cap companies

in some sense, orphans of the public market) leads to limited institutional

opportunities, which leads to less attention from the market, fewer buyers, lower

share prices and low trading volume

4.0 Regulation governing Takeover and Merger transactions in MalaysiaThe main regulations governing M&A transactions in Malaysia include the Companies

Act 1965, the Capital Market & Services Act 2007 (CMSA), the Guidelines for the

Acquisition of Assets, Mergers and Takeovers issued by the Foreign Investment

Committee of Malaysia (FIC Guidelines), the Malaysian Code on Takeovers and

Mergers 2010 (Take - over Code) and the Listing Requirements of the Bursa

Malaysia Securities Berhad (Bursa Malaysia) for public listed companies. Section


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216 of the CMSA and the Companies Act 1965 govern M&A transactions that involve

the sale or purchase of substantial assets by a public company while Section 217 of the

CMSA and the Take-over Code regulate M&A transactions that involves the

acquisition of voting shares which results in a change of control in a company. These

regulations are put in place to protect the interests of shareholders and to ensure that all

take-overs and mergers take place in a competitive, informed and efficient market.

Also, the laws and regulations are to ensure all shareholders of a company involved in a

take-over and merger situation receive fair and equal treatment.

5.0 Considerations In Taking A Public Listed Company PrivateThe conducts of takeover schemes are regulated by the Securities Commission and are

subject to the Malaysian Code on Take-Overs and Mergers 2010 and Companies Act

1965. There are three types of considerations in taking a public company private. There

are:

1) Acquiring the company2)Voluntary offer3)Acquisitions of assets5.1 Acquiring The Company

The process of taking a company or an asset private will inevitably involve

acquisitions. In the case of a listed company, apart from the trading of its shares

on the stock market, the shares can be acquired by way of private treaty deals

(also known as direct business transactions) in compliance with the rules of the

Bursa Malaysia for such transactions.

5.1.1Mandatory OfferIn the context of a privatisation exercise, depending on whether the acquirer

already holds shares in a target company, the acquisition may be structured

in such a manner that the acquirer first acquires a controlling block from the

existing majority shareholder. The completion of such acquisition then

triggers an obligation on the part of the acquirer to make a takeover offer to

acquire the balance of the shares of the target company that are not already

held by the acquirer. This is described as a mandatory offer, that is, an offer


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that has to be made under section 33B of the Securities Commission Act

1993 (the SCA). Further, this mandatory offer must comply with the

requirements stipulated under the Malaysian Code of Take-overs and

Mergers 2010 (the Code) which is the subsidiary legislation issued under

the SCA to govern take over exercises in Malaysia together with the various

practice notes issued thereunder. Section 9 (1) of the new TOM ode

provides that a mandatory offer may be triggered where:-

an acquirer obtained control of a company, which in relation to the acquisition of shares, means the acquisition or holding of, or entitlement

to exercise or control the exercise of, more than 33% of voting shares in

the company; and

holds more than 33% but less than 50% of the voting shares of acompany, and such acquirer acquires in any period of 6 months, more

than 2 % of the voting shares of the company.

Example of the mandatory is the mandatory take-over offer by Daikin

Industries Ltd to acquire the remaining voting shares in OYL Industries

Berhad pursuant to the completion of its acquisition of the first block of

the OYL shares through the private treaty deal entered in October 2006.

5.1.2Voluntary OfferAlternatively an offeror may make a voluntary offer to the shareholders of a

target company to acquire their shares. This offer may be a voluntary offer

to acquire all 100% shares in the issued capital of the company. One of the

example is the voluntary take-over offer by Malaysia Retail Group Limited

of all 100% voting shares in Courts Mammoth Berhad. Under the new code

(Malaysia Code On Take-Overs And Mergers Code 2010), offeror entitled

to make voluntary offer conditional upon receiving acceptances which

would result in the offeror holding in aggregate more than 90% of the

voting shares of the offeree. The Code prescribes certain procedures to be

followed within certain time frames in respect of the take-over exercise

which include provisions on making announcements, sending notices andthe offer document to shareholders, terms of the offer and the offer period.


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Generally, the take-over exercise may take between three to four months to

complete.

The aim of most take-over offers is to garner sufficient acceptances to be

able to acquire 100% interest in voting rights of the target company. If there

is no single controlling shareholder and the shares are widely dispersed the

chance of success is higher. However, the offeror has to be prepared to face

potential difficulties involving the minority shareholders. Whilst it would

make sense for the majority shareholders to privatise their companies only

if they benefit from the bargain, there may be various reasons for minority

shareholders to oppose a take-over offer. Usually, if the level of

acceptances is high and the offeror has stated its intentions to privatise the

company, the minority shareholders are more likely to accept the offer. The

root of the disagreement is usually the offer price. Minority shareholders

may refuse to accept the offer in hopes that the offeror will be forced to

raise the offer price in order to achieve the requisite level of acceptances for

a successful take-over.

This was seen in the take-over of Malaysian Oxygen Berhad, in 2007,

where AGA Aktiebolag raised the offer price for the remaining shares it did

not own pursuant to a revised offer and this led to the receipt of acceptances

from certain substantial shareholders who initially did not accept the

original offer.

5.1.3Acquisition Of AssetsAn acquirer can also obtain control of the assets of a public listed company

by purchasing those assets. From the perspective of the acquirer, structuring

the transaction as an acquisition of assets or business has certain benefits. In

particular, there is a lower threshold required for success compared to the

take over offer for the shares as only a simple majority by way of an

ordinary resolution is required at the shareholders meeting of the vendor

company. This structure also gives the acquirer the ability to choose the

assets and liabilities to be taken over. As for the listed company, benefit of

its core assets or business, the listed company may or may not be able to


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maintain its listing status. There will be a combination of steps and

arrangements to de-list such an entity and to distribute the cash from the

disposal to its shareholders. If necessary, it will then be followed by

liquidation process.

5.1.4Scheme Of ArrangementA scheme of arrangement under section 176 of the Companies Act 1965

(Companies Act) is essentially an arrangement or compromise proposed

between a company and its shareholders or any class of them. If this route is

to be taken, the acquirer will need to establish an agreement with the major

shareholders of the target company for the major shareholders to initiate the

section 176 scheme for the company. Once a scheme under section 176 is

approved by the statutory majority of shareholders of the company at a

meeting that is properly convened and sanctioned by court, it will bind all

the shareholders of the company affected by it notwithstanding that some of

the shareholders may have voted against it.

A section 176 scheme is useful in so far as it avoids the requirement of

100% approval. In the case of public listed companies where it is difficult

to obtain approval from all shareholders due to the large number of

shareholders involved, the lower threshold would be particularly

advantageous. However, an acquirer may be deterred from employing the

use of a section 176 scheme of arrangement as the entire process can be

fairly convoluted and lengthy. Separate class meetings must be held if there

are various classes of shareholders and the approval of each class must be

obtained. Additionally, in a section 176 scheme, the acquirer may not havefull or total control of the processes involved as the scheme is to be

implemented by the target company.

Under the new code (Malaysia Code On Take-Overs And Mergers Code

2010), A takeover offer is given a wider definition. Section 44 of the

new code currently includes a scheme of arrangement, compromise,

amalgamation and selective capital reduction within the definition of a

takeover.


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5.2 Compulsory AcquisitionIn the case of a take-over exercise where the offeror has received acceptances

totalling 90% of the remaining shares (excluding the shares already held by the

offeror and its nominee or related corporations), section 34 of the SCA provides

that the offeror may apply to the court to compulsorily acquire the shares of the

remaining shareholders. There are prescribed forms which must be sent out within

a time period of 2 months. The court may only grant an order upon being satisfied

that :

(a) the failure of the offeror to obtain such acceptances was due to the inability

of the offeror to trace one or more persons holding shares after having made

reasonable enquiries;

(b) the shares acquired under the offer and shares held by the untraceable

persons meet the 90% threshold; and

(c) the offer price is fair and reasonable.

The court will also consider whether it is just and equitable to do so having regard

to the number of shareholders who have been traced but who have not accepted

the offer. Where the offeror has not achieved the requisite level of acceptances,

the compulsory acquisition option is not available to acquire the remaining shares

from the minority shareholders. In such a case, the offeror may have to revise the

offer price. However, if this is done, the effect of section 20 of the Code would be

that the offeror will have to increase the consideration that is to be paid for the

acceptances which have been received to not less than the highest price paid or

agreed to be paid by the offeror during the offer period.

5.3 Exit offer and De-listingWhere the offeror achieves more than 75% but less than 90% acceptances, the

offeree may not be in compliance with the 25% public spread requirement under

Paragraph 8.15 of the Listing Requirements. In such an event and as part of the

efforts to acquire all the remaining shares from the minority shareholders, the

offeror may propose to the offeree to apply for a voluntary withdrawal from the

Official List of Bursa Malaysia. The voluntary withdrawal procedure is outlined


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under Paragraph 16.05 of the Listing Requirements and necessitates the offeree

convening a general meeting of its shareholders to obtain the approval of the

proposed withdrawal by way of a specialresolution.

It should be noted here that the special resolution in conjunction with the

proposed withdrawal has additional features and requirements and is different

from the special resolution under the ambit of the Companies Act.

Notwithstanding the fact that theshareholders in favour of the resolution hold

more than 75% in value of the shares of the shareholders present and voting, the

offeree must ensure that (a) the shareholders in favour of the resolution represent

a majority in number ; and (b) the resolution is not objected to by more than 10%

of the value of the shareholders present and voting at the meeting. Where either

of these additional conditions is not complied with, the resolution fails and the

offeree may not undertake a voluntary withdrawal and will have to explore other

options to comply with the public shareholding spread requirement under

Paragraph 8.15 of the Listing Requirements.

As part of the voluntary withdrawal process, the shareholders of the company are

to be offered a reasonable cash alternative or other reasonable alternative

(referred to as Exit Offer). Upon the resolution being passed, the Exit Offer

would be made to the offerees shareholders to provide another opportunity to the

shareholders to realise their investment and to avoid holding unlisted shares of

the offeree. The Listed Company may submit an application to Bursa Malaysia to

request for the withdrawal of its listing from the Official List pursuant to

Paragraph 16.06 of the Listing Requirements upon fulfillment of all the

conditions outlined in Paragraph 16.05 of the Listing Requirements. Subject to

the receipt of the requisite level of acceptances under the Exit Offer, the offeror

may be able to invoke the compulsory acquisition procedure under section 34 of

the SCA.


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6.0 The impact of going private to minority shareholdersThe impact of going private to minority shareholders can be negative and positive.

6.1

Negative impact

There are several negative impacts to minority shareholders if the public listed

companies going private. They are:

a)Generally, minority shareholders may be sad when companies with strongfinancial performance, paying good dividends are taken private. A good

example is Maxis, considered one of the best blue chips listed on Bursa

Securities was taken private in 2008. The minority shareholders that have tochoose to sell their shares cannot enjoy good dividends from the companies

b)For shareholders who chose to maintain their shares cannot enjoy the liquidityof the securities or stocks owned by them anymore. There is no secondary

market for the stocks anymore.

c)The minority shareholders are not fully protected by the action taken by themajority shareholders because the directors of a private company are notsubject the Bursa Listing requirements in order to make certain actions or

decisions in their business as stated in Chapter 9 and chapter 10 of the Bursa

Malaysia Listing Requirements.

d)If the company is not subject to Bursa Malaysia Listing Requirements and SCregulations, the minority shareholders will not have much avenue to complain.

e)In the process of the takeover, if the minority shareholders don't want to sell,then their shares can be mandatory acquired when certain thresholds are

breached. Therefore we can say that, in the process of going private the

minority dont have much choice to choose.

f) Sometimes the minority shareholders not satisfy with the exit price. Forexample, the Minority shareholders were upset with the takeover of PK

Resources Bhd, where the offer price was below the closing price (when the


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proposed takeover was announced) and also far too low compared to the NTA

of the company.

g)Sometimes advisers are supposed to come with unbiased reports, but in almostall cases they are hugely biased, favouring the major shareholders, urging the

minority shareholders to indeed accept the (very) low offer price. (PK

Resources Bhd)

h)Sometimes the board of directors who supposed to do their fiduciary dutyfailed to do so, especially regarding the exit price. For example, in the

takeover of PK Resources Bhd, the Board decision was not unanimous, with a

few directors of PK Resources advising minority shareholders to reject the

offer and some had advised the minority shareholders to accept the offers.

i) There is a huge information bias, the majority shareholder has much moreinside information about the company (both about the current conditions and

the future outlook) than the minority shareholders SC didnt proposed the

appropriate exit price

6.2 Positive ImpactNevertheless, shareholders can appreciate that privatisation is a mechanism for

the owners to pursue their objectives and targets; to further reflect the true worth

of the company and possibly, the good companies may make a comeback to the

corporate scene with bigger and better value propositions to investors. However,

normally the benefit goes to majority shareholders.

Since the privatisation of a public might give the positive and the negative impact to

minority shareholders, the most important element in the takeover is pricing. Minority

shareholders will be more willing to let go of their shares if they view that the offer

price is fair to compensate for their loyalty for investing in the company.


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7.0 Are the minority shareholders are fully protected in going private process inMalaysia?

In order to decide either the minority shareholders are fully protected in going private

process, we have to look to the act and regulation in Malaysia regarding TOM

procedure because privatisation have to go through the takeover process. The real

scenario in Malaysia (regarding going private) and exit price also will be analysed to

see either the going private process favour minority shareholders or not.

7.1 Protection to minority shareholders due to different method in a takeoverThe takeover and merger in Malaysia is subject to the guidelines given by the

regulators in Malaysia such as SC, Bursa Malaysia and SSM. It that must be

followed by parties that involved in Takeover and Merger process. The purpose

of the guidelines is to protect the minority shareholders interest. Below are the

protection given to minority shareholders in takeover process.

7.1.1Equal treatment of shareholdersThe takeover law in Malaysia requires equal treatment of shareholders. This

has been mentioned in S33A (5) c of the SC. Following this principle, all

shareholders of the target enjoy an equal right to sell their shares at the

same price to the bidder. Where an offer is revised during the offer period,

the bidder is bound to pay those shareholders who have accepted the offer

the same revised price. The right to equality of treatment is enjoyed by the

target shareholders even after the offer lapses. This occurs where the bidder

exercises its right to the compulsory acquisitions of the remaining shares to

squeeze out the dissenting shareholder from the target company. The law

requires the bidder to offer the dissenting shareholders the same price

offered to the accepting shareholders.

Furthermore, S217 (5) (c) and (d) declare that there would be fair and equal

treatment of all shareholders, in particular, minority shareholders, in

relation to the take-over offer, merger or compulsory acquisition. The

section continues on explaining that, the directors of the offeree and

acquirer shall act in good faith to observe the objects, and the manner in

which they observe the objects and that minority shareholders are not


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subject to oppression or disadvantaged by the treatment and conduct of the

directors of the offeree or the acquirer.

7.1.2Protection in compulsory acquisitionAnother protection given to the shareholders of a company can be seen in

the law relating to compulsory acquisition of shares. According to S 222(1)

of CMSA,the offeror may, at any time within two months from the date the

nine-tenths in the nominal value of those shares have been achieved, give

notice in the manner prescribed under the Code to any dissenting

shareholder that it desires to acquire his shares together with a copy of a

statutory declaration by the offeror that the conditions for the giving of the

notice are satisfied.

Where an intention to invoke section 222 of CMSA is disclosed in the offer

document, the offeror shall make an announcement when he becomes

eligible to invoke the compulsory acquisition, by way of a press notice; and

if the securities of the offeree or the offeror are listed on the relevant stock

exchange of Malaysia, to the stock exchange in Malaysia. (TOM-PN 32).

Furthermore, the offeror must make another announcement on whether he is

still eligible to undertake the compulsory acquisition at the close of the

take-over offer.

Where the dissenting shareholders challenge the bidders right to

compulsorily acquire their shares, the law provides avenue for them to

bring the matter to Court as laid down in S 224 of CMSA. The Court is also

given the discretion to vary the terms of the offer. The burden of proof,

however, lies upon the applicant or dissenting shareholder to show that the

offer is not fair. This is not an easy task for the applicant since the 90 per

cent acceptances will be generally taken by the Court as evidence that the

offer is fair. Nevertheless, the Court plays an important role at this stage to

ensure that the minority shareholders are not oppressed.


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7.1.3Protection in mandatory bidThis rule allows the target shareholders who wish to exit the company to do

so where an acquirer has gained control in the target company. In other

words, the mandatory bid rule prevents the bidder from acquiring control

over the whole of the company by purchasing only a proportion of the

shares unless the bidder makes an offer to the remaining shareholders of the

target company. The law presumes an acquirer to have control where the

acquirer acquires or holds more than 33 per cent of the shares of the target

company. Not only does the Code allow the shareholders to exit the

company, it also provides guidance on the minimum price for the shares of

the target.

The Code requires the acquirer or the bidder to offer to the target

shareholders, the highest price paid by the bidder for the shares of the target

six months prior to the making of the offer or during the offer period.

Assuming that the bidder has purchased shares from an existing controlling

shareholder who allows the bidder to gain control, the law affords the

remaining shareholders in the target company the right to sell their shares at

the highest price the controlling shareholder receives for his or her shares in

the target. It must, however, be noted that where there is a single controlling

shareholder in the target, the minority shareholders may be at a greater risk

of exploitation especially where it involves a distressed seller.

7.1.4Protection against misleading and false informationIn order to ensure the shareholders right to seek information for rational

decision is exercised, Section 33E of SCA, 1993 as well as section 221 of

CMSA, 2007 laid down rules on that matter. These sections elaborate that

all documents or information required to be submitted to the SC in relation

to, or in connection with, a takeover offer shall not contain any false or

misleading information. Not only that, these provision warns the

responsible persons ( such as the bidder, persons acting in concert and

advisers) not to engage in misleading or deceptive conduct. All of these

provisions is for the purpose of protecting shareholders.


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7.1.5New Code has reduced the payment period of takeoverThe new code has reduced the payment period of takeover. According to

section 21 (5) of the New TOM Code 2010it reduced from 21 days to 10

days for cash consideration and according to section 21 (6) of the new TOM

code it reduced the payment periods from 21 days to 14 days for

securities or a combination of cash and securities consideration.

7.1.6Scheme of arrangementsThe Securities Commission now regulates schemes of arrangement,

compromise and amalgamation; and selective capital reduction exercises

which are treated as takeover offers and the 2010 Code imposes higher

shareholders approval thresholds than that previously imposed under the

Companies Act, wherein approval for the scheme or exercise now requires

an affirmative vote of at least 50% in number and 75% in value of votes

attached to the disinterested shares and not more than 10% of votes cast

against such resolution.

7.2 Privatisation issue in MalaysiaThere are two issues arise in the privatisation of public listed company in

Malaysia. They are as follows:

7.2.1 Reason for privatisation in Malaysia

Below are the statement made by the Khazanah Nasional Bhds MD Tan

Sri Azman Mokhtar. This statement can give us one picture why companies

in Malaysia going private. (Source: Business Times 1/4/2010).

Pay television operator Astro All Asia Networks plc is best taken private at

this stage of its development, the chief of its major shareholder Khazanah

Nasional Bhd said .

"We feel in its current stage of development with high definition television

and the Indian investment, it is time when it needs to be taken off the

market. I think you get better value ... but the debt market gets developed


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as a result," managing director Tan Sri Azman Mokhtar told reporters on

the sidelines of the Invest Malaysia conference yesterday.

"But you can see the track record of the Usaha Tegas group ... they

eventually go back for a listing," he said, referring to the recent re-listing of

the group's Maxis Bhd.

Khazanah, which owns about 21.4 per cent of Astro, together with other

owners Usaha Tegas Sdn Bhd and Bumiputera foundations had on March

17 offered to buy out minority shareholders of Astro at RM4.30 a share.

Astro closed up 2 sen at RM4.28 yesterday.

Based on the above statements, we can conclude that

From corporate governance point of view the implication are simplyhorrific. The Corporate governance guidelines in Malaysia do not protect

minority shareholders.

Like there is sort of game going on. The big players (the majorityshareholders) can list, privatize and relist companies at will, at a moment

and price that is convenient for them without thinking the minority

shareholders interest. If they think they can get fund from other sources

such as debt, they will leave the share markets and re-list if the debt

market do not favor them. The minority shareholders are kicked out

when they are not needed.

7.2.2Exit priceSince the privatisation does not favour the minority shareholders, they must

be paid with high premium. However, there are sometimes the minority

shareholders were not satisfied with the exit price in Malaysia. Example in

Malaysia:

a) minority shareholders were upset with the takeover of PK ResourcesBhd, where the offer price was below the closing price (when the

proposed takeover was announced) and also far too low compared to the

NTA of the company. In this case, the independent adviser for minority

shareholders had advised them to reject the offer. Interestingly, the


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Board decision was not unanimous, with a few directors of PK

Resources advising minority shareholders to reject the offer.

b)The privatisation of construction and engineering firm Ranhill Berhad-offer price at premium of 15.5 sen or 21% over 74.5 sen. The minority

shareholders not satisfied with the price and claim that offer bids should

be allowed to come in, giving minorities an opportunity to exit the

company at possibly a better price.

7.3 Limitation of the CodeSeveral changes have been made to the Malaysian Takeovers and Mergers Code,

which now requires companies to adopt a higher level of disclosure and makes

independent directors more than just rubber stamps. According to the Securities

Commission (SC), key changes incorporated into the Malaysian Takeovers and

Mergers Code 2010 benefit shareholders and include protection for investors of

foreign companies and real estate investment trusts listed on Bursa Malaysia,

shorter settlement periods and enhanced disclosures offer documents and

independent advice circulars. The new regulations, which come into force in Dec

2010, replace the Malaysian Code on Takeovers and Mergers 1998.

However, the changes do not address the controversial issue of preventing the

privatisation of companies via the asset and liability (A&L) route, which is part of

the Companies Act. According to bankers familiar with the regulations, the SC is

looking at curtailing the takeover of companies via the A&L route through

changes to listing requirements as it would be less cumbersome. Changes to the

asset-disposal route cant be done as we cant touch on the Companies Act (CA),said one banker.

The controversy surrounding the takeover or privatisation of companies via the

A&L route lies in the fact that it requires only the approval of 50% of

shareholders plus one share. Other takeover methods require at least 75%

shareholder approval.


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8.0Conclusion

There are many reasons why a public listed companies going private. The reasons are

more favourable to majority shareholders. The privatisation gives mostly negative impact

to shareholders minority such as there are not much avenue to complain because they are

not protected under Bursa Listing Requirement anymore. In privatization of a public

listed company, the minority shareholders in Malaysia are not fully protected in term of

exit price premium. The SC cannot decide either the exit prices are appropriate or not.

The independent advisor such as SC should be appointed to come with unbiased report

especially about the appropriate exit price. The companies in Malaysia also has been

taken private without proper reason such the privatisation of Astro as mentioned earlier in

this study.. Below are the recommendations in order to make sure the minority

shareholders are fully protected in case of listed company going private:

The independent advisor should be appointed to come with the appropriate exit price. The price offered should be fair and reasonable, beyond any doubt:

It should be at a clear premium to its average last traded price

The price should not be at a discount to its net asset value. The Board of Directors should have made attempts to unlock the value of the assets

(for instance by holding auctions). The board of directors should play their role to

protect minority shareholders.

The companies should not be taken private, unless there is a very clear reason for it.For example, only the company has hardly any business left and the liquidity of the

shares extremely low are allowed to going private.


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Reference

1. Business Times Malaysia 20 June 2007, Privatisation wipes out RM46.3b fromKL stock market.

2. The Star online, Saturday July 26, 2008, Going private: A dilemma to minorityshareholders

3. The star Online, Tuesday April 12, 2011, Almost as many companies takenprivate as IPOs the past 6 months

4. Securities Commission Act 19935. Malaysian Code on Take-overs & Mergers 1998 and 2010.6. Practice Note, Bursa Listing requirement7. Capital Market and Services Act 20078. Company Act 19659. Securities Industry Act 198310. Bursa Malaysia Website - Listing Requirement11. Securities Commission Website12. SC Public Response (Paper No. 2/2011) - Proposed Updates to Guidelines on Contents

Of Applications Relating To Take-Overs And Mergers

13. SC Public Response (Paper No. 3/2011) - Proposed Amendments To BursaMalaysia Securities Berhad Listing Requirements On Privatisation Of Listed

Companies Via Disposal Of Assets

final private

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