Shell Refining Co shareholders reject MHIL’s takeover offer

Night view of Shell Refining Company in Port Dickson taken 2005.

KUALA LUMPUR: Most shareholders of Shell Refining Co (Federation of Malaya) Bhd (SRC) heeded independent adviser AmInvestment Bank’s advice to reject Malaysian Hengyuan International Ltd’s (MHIL) unconditional takeover offer of the refiner at RM1.92 per share.

In a filing with Bursa Malaysia, the petroleum product manufacturer said SRC managed to receive acceptances representing only 0.02% of SRC’s paid-up share capital as at 5pm on Jan 31, the closing date.

This brought the equity shareholding of MHIL and persons acting in concert to 51.02%.

MHIL, ultimately owned by China’s Shandong Hengyuan Petrochemical Co Ltd, completed the purchase of 135 million SRC shares, or a 51% stake, at RM1.92 from Shell Overseas Holdings Ltd (SOHL) at an offer price of RM1.92 in December last year, on a day when the share price closed at RM2.29.

Today (Tuesday, Jan 31). SRC shares closed at RM2.82, up 7 sen with 597,800 shares changing hands.

AmInvestment Bank described the offer as both unfair and unreasonable in a circular to shareholders on Jan 19.

SOHL started the sale process in early 2015 and MHIL became the highest bidder that was able to meet all of its criteria, including funding of the acquisition as well as refinancing of SRC’s debt,

Shell had in February last year explained that the MHIL offer price of US$66.3mil (RM293.76mil) – which was widely seen as valuing the asset below its market price – was the outcome of the competitive process.

“The price is acceptable to the board of SOHL, taking into account SRC’s current assets, SRC’s debt and new financing arranged by MHIL, SOHL’s views on future refining margins, and future investments required to meet Euro 4 and Euro 5 fuel specifications,” Shell said.

On Dec 19, 2016, the acquisition by MHIL became unconditional. On even date, RHB Investment Bank, on behalf of MHIL, served the notice on the board informing SRC of the offeror’s obligation to extend an unconditional take-over offer to acquire all the remaining 147 million SRC shares.

AmInvestment Bank said the RM1.92-per-share offer was not fair as it, among others, represented a discount from 53.8% to 59.6% over the range of fair value per SRC share based on discounted cash flow valuation of between RM4.16 and RM4.75 per share.

The adviser also noted that the offer was not reasonable as MHIL intended to upgrade the refinery plant in Port Dickson to meet the Euro 4M and Euro 5 fuel standards specification requirements and thus make it viable and continue as a going concern.

In addition, MHIL intends to strengthen SRC’s position as a regional refined product supplier which would be in the best interest of SRC’s shareholders.

MHIL did not make any extension to the original deadline for acceptances.