When directors disagree, circulars to shareholders may be a bit more interesting
THERE’S no way you can describe circulars to shareholders as page turners. They are often numbingly bland documents, stuffed with bloodless text and rows upon rows of numbers. You get no enjoyment from going through these circulars.
Corporate battles are pretty common in Malaysia. However, the disputes, rancour and gamesmanship are seldom discernible in the annual reports and circulars that the shareholders receive. Instead, the real drama is usually played out in boardrooms, through the media and in court.
Even when the combatants choose a route as nakedly hostile as proposing to remove directors and to appoint their nominees, the language in the announcements and circulars is neutral to the point that these manoeuvres seem almost routine and harmless.
After all, there is no requirement to provide explanations for these boardroom changes, and more often than not, none is offered.
Lately, there have been a few exceptions. For example, in February, when two shareholders of Ho Hup Construction Co Bhd requisitioned an extraordinary general meeting (EGM) to vote on resolutions to replace existing directors with their choices, they explained this move via a 10-page letter to shareholders.
Very early into the letter, the two shareholders made clear their sentiment: “We are unhappy about the state of affairs in Ho Hup.” The two shareholders got their wish and at the EGM in March, the new faces were voted in.
Then there’s the tussle at Petra Perdana Bhd, which led to an EGM in February to oust some directors. In the related circular, the requisitionists quoted liberally from 15 news and research reports to buttress their bid to remove the directors.
In these instances, the additional information were given voluntarily. Apparently, the requisitionists felt that they needed to go over and above the disclosure rules to persuade fellow shareholders. Otherwise, you hardly ever get to see discontent expressed in communications to shareholders.
But believe it or not, Bursa Malaysia’s listing requirements do provide for circumstances in which a disagreement among directors has to be conveyed to shareholders.
This applies to circulars to shareholders on new issues of securities, termination of share schemes for employees, related party transactions and certain other transactions.
In such circulars, the boards of directors are obliged to give statements stating whether the proposed transactions or moves are in the best interests of the listed companies.
The interesting bit is that the listing requirements also stipulate that when a director disagrees with such a statement, he must provide a statement giving his reasons and the factors he had considered in coming up with his dissenting opinion. That promises a dash of tension in the circular.
Then again, we are talking about corporate Malaysia, where keeping a stiff upper lip is the norm and saving face is always a priority. Plus, it’s plain irresponsible to expose yourself to a lawsuit just because you want to vent in a circular to shareholders.
Therefore, forget about fiery prose and gossipy allegations. The few times that directors have put in writing their disagreement over corporate exercise have been rather tame and polite affairs.
In December 2005, shareholders of The Ayer Hitam Planting Syndicate Bhd (TAHPS) attended an EGM to vote on a proposed acquisition of a 50% stake in a property developer. Two of the nine directors were against the move.
One of the dissenting voices complained that TAHPS did not have a clear business strategy for the target company. The other director objected because he believed that the company had not done a “proper” marketing study despite recognising that the property market was softening. He also said the company had not conducted a thorough risk investigation into the proposed acquisition.
The rest of the board countered these concerns succinctly and proceeded to recommend that shareholders vote in favour of the resolution. And so they did.
A more recent example was when Edaran Otomobil Nasional Bhd (EON) asked shareholders to vote for a proposed voluntary delisting in a June 2008 EGM. This followed a general offer for EON shares by HICOM Holdings Bhd, which resulted in HICOM owning 79% of EON’s equity.
Thus, EON did not meet the public shareholding spread requirement and HICOM wanted to delist it next. The objection at board level came from Keizo Ono, a representative of Mitsubishi Motors Corp. His argument was simply that EON share would be marketable as long as the company remained listed and shareholders would have the flexibility of trading in those shares.
It didn’t sound like a game-winning argument, but nevertheless, the resolution was not voted through and EON remains listed.
So, yes, when directors have a clash of opinions over deals, very little of the emotions spill onto the circulars to shareholders. Still, we look forward to EON Capital Bhd’s circular to shareholders ahead of its imminent EGM on Hong Leong Bank Bhd’s offer to buy its assets and liabilities.
In its announcement on Thursday, EON Cap says Ng Wing Fai, the director representing 20.2% shareholder Primus Pacific Partners (HK) Ltd disagrees with the other directors’ opinion that the proposed disposal to Hong Leong Bank is in the best interests of EON Cap.
We are told that Ng’s views will be included in the circular that will be issued soon. Let’s wait and see how he articulates his stand in the face of overwhelming odds that there will be sufficient votes in favour of the deal.
>Deputy executive editor Errol Oh relishes reading between the lines. More than that, he enjoys the challenge of writing the stuff that goes between the lines.