This article talks about Sime Darby Berhad (SD), the largest multinational company in Malaysia, which has recently acquired 30% of Eastern & Oriental Berhad (E&O)’s shares from 3 of its main stakeholders – E&O Managing Director and founding member Datuk Tham Ka Hon, Tan Sri Wan Azmi Wan Hamzah, and GK Goh Holdings Limited (Singapore). In our critique, we will discuss the factors influencing SD’s decision, the impact of this acquisition on stock prices of both companies, and how the market would react if SD was obliged to make a Mandatory General Offer (MGO) to buy out all E&O shares.
M&A - Diversification
SD is a leading multinational conglomerate in Malaysia, with a net worth of USD16.34 billion. It has six divisions, with the property division’s revenue contribution at a distant fourth behind the Motor, Plantation, and Industrial divisions’ .
Despite 40 years of experience in developing property, much of SD Property’s prime land bank still remains undeveloped. SD has chosen to diversify and strengthen its property division by acquiring expertise in various niche markets; working with and getting a feel of operations of well-known players in these fields . Similar to a diversified investment portfolio, strengthening and diversifying each division allows SD to better hedge against economic downturns, as property markets respond differently to economic shocks compared to SD’s other core divisions.
M&A – Synergy
Along with this 30% acquisition, a 3-year collaboration agreement to retain the current MD Datuk Tham Ka Hon and his management team was signed, retaining expertise of its current management in addition to having access to coveted land in Penang (a 100% acquisition would likely lead to loss of human expertise through hostile takeover).
With this acquisition, SD can leverage on the talent, branding and experience of E&O as a niche property developer. SD has already made plans to send some of their property division staff to...
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