In March 2010, the Securities Commission of Malaysia (Securities Commission) and the Bursa Malaysia securities exchange (exchange) jointly released a consultation paper proposing changes to the exchange's listing requirements, relating to the privatisation of listed companies through the disposal of assets (asset disposal). The proposed changes were that for the listed company disposing of all or substantially all of its assets resulting in a privatisation, approval must be obtained by the following:
(i) at least 75% of shareholders present and voting in terms of value (75% value threshold);
(ii) more than 50% in number of shareholders present and voting (50% number threshold); and
(iii) not more than 10% of the shareholders present and voting in terms of value objecting to the asset disposal (10% dissenting threshold).
A listed company in Malaysia may be privatised in several ways. Privatisation under the Malaysian Code on Take-Overs and Mergers 2010 (Code) requires an acceptance level of 90% of the voting shares of the company (excluding shares already owned by the offeror or persons connected with the offeror) before the buyer can enforce minority squeeze-out rights and privatise the company.
A scheme of arrangement under the Companies Act 1965 requires the approval of a majority in number and at least 75% in value of the company's shareholders present and voting at general meeting. Privatisation through an asset disposal, however, requires only a simple majority of those shareholders present and voting at a company's general meeting.
The issue which prompted the proposed changes to the exchange's listing requirement lies with the disparity in the level of shareholder approvals required to implement these different methods of privatisations, in particular, the asset disposal route. Malaysian minority shareholder activist groups believed that by allowing a lower shareholder approval threshold for asset disposals, minority shareholders are being disenfranchised, as major shareholders of listed companies can effectively vote through a disposal of all or substantially all of the listed company's assets.
These proposed changes were not unopposed. Some market participants held the view that the 75% value threshold may stifle M&A activity in Malaysia. There has been much of this kind of activity since 2005, with most large transactions being completed by way of asset disposal. Two of the most notable M&A deals to date, Bumiputera-Commerce Holdings' (now CIMB Group Holdings) acquisition of Southern Bank and the Synergy Drive merger, created immense value – MYR15.2 billion ($4.98 billion) in the Southern Bank acquisition and MYR35.9 billion in the Synergy Drive merger. This kind of value creation would have been stifled if not for the ability of these transactions to proceed under the asset disposal route.
For each of the privatisation routes, such as a takeover pursuant to the Code or a scheme of arrangement or asset disposal, there are already legal provisions in place to ensure protection of both majority and minority shareholders. The Code is designed to ensure that takeovers are conducted in an informed market place with all shareholders being treated equally.
In a scheme of arrangement, the approval threshold is higher (a majority in number and 75% in value of the members present and voting in person or by proxy), and rightly so as shareholders are being asked to agree to compromise their proprietary rights. There are many different modes of taking a listed company private, each with its own check and balance for the protection of all shareholders including minorities. It is inappropriate to apply the threshold from one mode, such as that for schemes of arrangement, to all other modes, in the interest of standardisation.
Furthermore, there is no oppression to the minority by allowing an asset disposal through a simple majority. Both majority and minority shareholders may gain from an asset disposal. If directors (acting in their fiduciary capacities) believe that it is in the best interests of the shareholders to dispose of its assets, both the majority and minority shareholders will vote for the disposal if they believe that the assets are being sold at the best possible price. Similarly, if a company simultaneously undergoes a capital reduction and repayment exercise allowing the shareholders to take cash and exit from the company at a premium, there is no oppression of the minority interest.
On January 28 2011, the Securities Commission and the exchange issued a public response paper stating that it was necessary to implement the 75% value threshold to ensure parity in the level of investor protection. The regulators decided not to implement the 50% number threshold and the 10% dissenting threshold on the basis that the objectives of the proposals could be adequately achieved with the 75% value threshold alone. These changes have recently been implemented, and whether or not such changes will have an adverse impact on M&A activity in Malaysia remains to be seen.
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