Business

Saturday February 7, 2009

Proposed acquisition of SATS

By RITA BENOY BUSHON


MMC Corp Bhd made two separate announcements for the proposed acquisition of the entire stake in Senai Airport Terminal Services Sdn Bhd (SATS) as follows:-

·The first announcement made on Aug 4, 2008 for the proposed acquisition with the purchase consideration of RM1.95bil to be satisfied by the issuance of 696.4 million new in MMC at an issue price of RM2.80 per share.

·The second announcement made four months later on Dec 5, 2008 for the proposed acquisition with the revised purchase consideration of RM1.70bil to be paid in cash. The revised terms are made conditional upon MMC’s ability to successfully secure funds generated internally from divestment or disposal of assets for payment of the revised purchase consideration.

Bursa raised its concern on Dec 10, 2008 to MMC, querying the rationale for the change in the mode of payment for the revised purchase consideration from the issuance of new shares in MMC to cash.

MMC clarified that the issuance of shares at the prevailing market price would substantially dilute minority shareholders’ interests in MMC and reduce the earnings per share.

Subsequent to Bursa’s query, MMC further announced on Jan 16, 2009 that the revised purchase consideration is to be partly paid in cash and external funding to be sourced by MMC.

Background of SATS

SATS operates the Senai Airport located on a 1,225.58 acres land under a 50-year concession commencing November 2003 with a 20-year licence approved by the Minister of Transport under the Civil Aviation Act 1969.

SATS via its wholly owned subsidiary, Enigma Harmoni Sdn Bhd, owns 2,718.68 acres freehold land with the planning approval obtained from the Majlis Perbandaran Kulai for the proposed development of the Senai Airport City comprising the Cargo Hub and Logistics and High-Tech Park which include a Customs Inspection and Quarantine Complex and mixed development.

SATS’s unaudited net assets stood at RM295.5mil and a net loss after tax of RM24.8mil as at June 30, 2008. For the previous year ended June 30, 2007, its audited accounts showed its negative net worth in terms of its net tangible liabilities at RM64.4mil and an after-tax profit of RM32.9mil.

Minority Shareholder Watchdog Group’s (MSWG) views

MMC’s proposed acquisition of SATS is a related party transaction involving a common major shareholder and parties related to Tan Sri Syed Mokhtar Al-Bukhary. Being a related party transaction, an independent adviser, Hwang DBS Investment Bank Bhd has been appointed to advise both the non-interested directors and other minority shareholders of MMC. Major institutional investors and other major minority shareholders such as Skim Amanah Saham Bumiputra (SASB), Permodalan Nasional Bhd (PNB) and Employees Provident Fund (EPF) which have direct interests of 16.92%, 5.34% and 5.51% respectively in MMC’s share capital, would need to evaluate the deal and to decide on whether the proposed acquisition is in their best interests.

Investors and stakeholders are raising concerns over the deal, which MMC ought to address. Among the concerns are as follows:-

·The basis of valuation of SATS by IPC Island Property Consultants Sdn Bhd for the market valuation of RM2.2bil. In view of the hefty purchase consideration, MSWG recommends that a second independent valuation of SATS is warranted.

·The proposed acquisition will turn SATS into a wholly-owned subsidiary of MMC.

SATS is currently loss-making and it is not in a position to make any positive contribution to the consolidated earnings of MMC Group in the near to medium term.

Given the financial circumstances of SATS, MMC would be required to increase further its borrowings for the proposed development of the Senai Airport City while its substantial bank and cash balances would be used up for the payment of the proposed acquisition. How can the Board address these issues?

·The revised terms are made conditional upon MMC’s ability to successfully secure funds generated internally from divestment or disposal of assets for payment of the revised purchase consideration for the proposed acquisition. Can the Board clarify how the assets to be divested or sold off are identified for the purpose of raising cash to fund the proposed acquisition?

·MMC stated that it will undertake to advance RM417.2mil to Enigma Harmoni, the wholly owned subsidiary of SATS, to repay the outstanding advances made by Semarak Restu Sdn Bhd (SRSB is one of the vendors). Can the Board clarify the nature of the outstanding advances made by SRSB?

·MMC Group’s balance sheet as at Sept 30, 2008, its intangible assets including goodwill stood substantially at RM8.5bil while its shareholders’ fund stood at RM6bil.

The proposed acquisition is likely to further increase the intangible assets and goodwill upon consolidation which would further negatively impact on MMC’s net worth. How would MMC’s Board address this issue?

MSWG strongly urges institutional investors of MMC, namely SASB, PNB and EPF as well as other minority shareholders to look into the various issues of concerns and to scrutinise the deal thoroughly.

All these shareholders must voice their concerns and exercise their votes in the best interest of the stakeholders.

·Rita Benoy Bushon is CEO of

Minority Shareholder Watchdog Group


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