TELEKOM MALAYSIA BHD and Celcom (M) Bhd are determined to push through with their inter-related corporate exercise despite market perception that these proposals could be derailed through various delays and objections by interested parties.
According to sources close to the companies, no amount of distraction such as injunctions or even a long-drawn arbitration processes could delay the merger. The merger is on schedule and expected to be completed by mid-year.
The corporate exercise entails Celcom buying up 100% equity in TM Cellular for RM1.68bil and merging it to create a larger cellular outfit.
The deal will trigger a mandatory general offer (GO) for which Telekom will buy the remaining shares it does not own in Celcom for RM2.75 a share. Telekom now has a 31.25% stake in Celcom and is said to be in the process of tying up a bond issue to finance the GO.
The sources also find it inconceivable that Telekom, which has invested huge amounts of money to get a stronghold in the cellular sector, would “walk away” due to distractions from other Celcom shareholders.
In January, Deutsche Telekom (DT), which has an 8% stake in Celcom, is said to have questioned the valuations of the deal. DT, however, according to the sources, are not opposed to the merger exercise.
To get their views heard over the valuations, DT requested for a meeting with Celcom senior officials. Talks were held in February but there was no conclusion and DT is said to have threatened to take the matter up for arbitration, which will be held overseas. Arbitration is a process that is provided for and not something special in the Celcom/DT debacle.
Informally, both parties are said to be still talking but none of them will reveal the details of their discussions.
Due to that, uncertainties have been cast on the fate of the merger exercise. Also an EGM scheduled for March 20 has been called by Celcom to secure shareholders’ approval for the purchase of TM Cellular.
Some sceptics doubt Celcom will get the votes required to force the resolutions at the EGM although analysts are inclined to believe otherwise. An analyst in his report said: “DT’s 8% will not be enough to overturn the proposed resolution as a simple majority. Excluding Telekom, all that is needed is 34.4% to force the resolution through.”
Apart from Telekom, the other shareholders include EPF; Lembaga Tabung Haji; Government of Singapore Investment Corp; Pengurusan Danaharta Nasional Bhd; and Khazanah Nasional Bhd.
“We would expect all other shareholders, foreign or local, to vote in favour of the resolution as it is a commonly acknowledged fact at this stage of the game, that most investors are in it for the GO price of RM2.75.
“Most foreign shareholders are also aware that if shareholders vote against the proposed resolution, Celcom’s share price is likely to hit the RM1.90 levels that were seen last year when there were serious doubts about the merger.
“More importantly, as the government is driving the merger, we think that most of the local institutions holding Celcom shares are inclined to vote in favour of the merger,” he said in his report.
As to the arbitration process, a senior lawyer who is familiar with the DT/Celcom issue said: “The arbitration process does not (necessarily) stop anything ... and the courts (may) not grant an injunction against an AGM or EGM if the damages are monetary.”
He said in this case, the contention was that DT did not go along with the valuations set for the purchase of TM Cellular and Celcom.
“Their (DT) claims, in a worst case scenario, would be in damages. If they seek to resolve it via an arbitration process, Celcom would consider it as not a friendly act,” said another source familiar with the issue.
“If DT is so concerned over valuations, why did they then sell the 158 million shares in Celcom last year at just RM1 a share when the market price was about RM2.45 a share?” he asked.
He also pointed out that Celcom was not opposed to the agreements that were signed between DT and the company but did not recognise the clauses on veto powers and the takeout clause which gave DT the right to exit at RM7 a share.
“No ordinary shares issued by a company can have special rights such as veto powers. Only special shares are allowed to have rights. In this case, the veto powers were given but no approval from the minority shareholders was sought, so the issue of validity arises. We also want to know the basis of pricing the shares at RM7 for the takeout clause,” he asked.
Despite all that, the optimists hope some form of resolution to the DT/Celcom debacle will surface, more so, since German Chancellor Gerhard Schroeder is expected to visit Malaysia in May and may be witnessing the signing of some commercial agreements.
To resolve the issue, one of the sources cited possible scenarios – third party buyout of DT’s stake in Celcom and compensation to be paid in various forms to DT.
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