UMW likely to get its way in MBM

Increasing stake: UMW owns a 38 stake in Perodua. Its parent company PNB has 10 in Perodua, a stake which UMW is planning to also buy. Combined with gaining control of MBM, UMW will end up with close to 70.6 in Perodua.

Med-Bumikar Mara’s EGM end of this month may result in shareholders accepting stake buyout offer

ONE significant party in the UMW Holdings Bhd-MBM Resources Bhd-Perodua saga is government agency Majlis Amanah Rakyat (Mara).

However, as the single largest shareholder in Med-Bumikar Mara Sdn Bhd – the private vehicle that controls listed MBM – it has remained silent on UWM’s overtures towards Perusahaan Otomobil Kedua Sdn Bhd (Perodua).

But now, Mara has stepped into the fray.

According to sources, it has prompted for an EGM of Med-Bumikar Mara to be held at the end of this month for its shareholders to consider the offer by UMW to buy its 50.07% stake in MBM. The jewel in MBM is its 20% in Perodua.

The saga involves a complex structure of companies.

However, the crux of the corporate exercise is for conglomerate UMW to increase its stake in Perodua.

Reports have indicated that by raising its stake in Perodua, UMW would raise the prospects of the loss-making conglomerate’s earnings.

Perodua is one of the two home-bred auto manufacturers and it is the market leader with a 36% share based on sales.

Based on its last audited results (2016), Perodua made a revenue of RM9bil and a net profit of RM464mil, resulting in a fair net margin of 5%.

It sold 205,000 cars last year on a lean line-up of four models, and is set to release a game-changing sports utility vehicle (SUV) by early-2019.

UMW currently owns a 38% stake in Perodua. Its parent company, Permodalan Nasional Bhd (PNB), has 10% in Perodua, a stake which UMW is planning to also buy. Combined with gaining control of MBM, UMW would end up with close to 70.6% in Perodua.

So, the key question is, will Mara get the support of other shareholders in Med-Bumikar Mara to sell their company’s stake in MBM to UMW?

UMW’s bid to increase its stake in Perodua started on March 9 when it made an offer to Med-Bumikar Mara to acquire its controlling 50.07% stake in MBM for RM501mil, or RM2.56 per share.

Besides its direct 20% interest in Perodua, MBM controls 5% more via 51%-subsidiary Daihatsu Malaysia Sdn Bhd.

Separately, UMW has also proposed to buy PNB Equity Resources Corp Sdn Bhd’s 10% interest in Perodua at RM417.5mil, or RM29.80 apiece.

However, Med-Bumikar Mara’s board of directors threw out the proposal. On March 26, MBM disclosed that it was informed by Med-Bumikar Mara that the board of directors of Med-Bumikar Mara had deliberated and decided to reject the offer from UMW.

The latter has since extended the acceptance period until April 30. In earlier reports, Med-Bumikar Mara’s executive chairman Datuk Abdul Rahim Abdul Halim (who is also MBM chairman) said that UMW’s offer for Med-Bumikar Mara’s stake was fair but not reasonable.

MBM’s net tangible assets stood at RM3.68 per share, while the offer valued it at RM2.56.

Abdul Rahim also said the corporate exercise was not so straightforward, given that there are conditions precedent which need the consent of some other shareholders, including Japanese partner Daihatsu.

This “supplementary agreement” was entered by Med-Bumikar Mara at the time the entity transferred to MBM, which essentially states that Med-Bumikar Mara and MBM should be related companies.

According to him, MBM’s Japanese partners also prefer the current status quo in terms of shareholding.

Above this, existing shareholders in Perodua have the first right of refusal in the event an existing shareholder intends to sell a stake.

But many reckon that there are not many potential suitors for Perodua, considering the Daihatsu/Mitsui factor.

Meanwhile, in an email reply to StarBizWeek, Mara says: “We firmly believe that all deliberations must follow the necessary processes or be made via appropriate forums such as during the EGM which is to be held on April 30, 2018.

“Suffice to say that any decision by Mara pertaining to this matter is strictly guided by our mission to spearhead the fields of entrepreneurship, education and to increase equity investment for the benefit of our stakeholders.

“Any decision to be made by Mara in the proposed sale of the stake in MBM would be based not only on the potential strategic benefits it would bring to Mara as an entity, but also to the nation.

“The impact of this deal would need to be consistent with the national long-term vision in strengthening the automotive industry, particularly in responding to the many challenges brought about by factors such as rapid global technological and industrial development in the industry.”

Mara’s statement gives a tacit indication that it is in favour of UMW gaining control of Perodua, considering the consolidation in the automotive industry.

Sources say that Mara feels a consolidation move will benefit both Perodua and UMW, which assembles/distributes the Toyota brand of vehicles.

Daihatsu is, meanwhile, wholly owned by Toyota Motor Corp of Japan. The changing industry dynamics, they point out, include in particular the entry of China’s Zhejiang Geely Holding Group Co Ltd into the domestic market following its partnership with Proton Holdings Bhd.

Notably, just this week, Proton announced that it is set to launch a new SUV, the first product jointly developed with Geely, and that would be the first premium C-segment SUV produced by a Malaysian automotive brand.

How will Med-Bumikar Mara shareholders vote?

With the EGM being called now, all shareholders of Med-Bumikar Mara will get to vote on this deal.

The question is, what is the percentage of shareholders who will agree to the UWM offer?

Sources indicate that Mara is likely to have the support of two of the families in the privately-held entity.

They are believed to be the Looi and Wong families (see shareholding chart).

“If it is indeed true that Mara has the support of the two families, it could swing Med-Bumikar Mara to vote in favour of accepting the deal with UMW,” say sources.

MIDF Research, earlier this week, wrote that based on the chain of events at MBM in recent years, it noted that Looi Kok Loon and Wong Fay Lee (of two different families in Med-Bumikar Mara) had both left their positions in MBM within the same year in 2017.

Looi, formerly MBM’s managing director, left early last year.

Mara on its own can’t sway in any decision with its 29.18% stake.

The six other families hold between 11% and 13% each.

With the support of at least two families, there appears to be a strong case to push the deal at the EGM.

This could mean that the deadlock in the UMW-MBM-Perodua saga could likely be broken.

The next two weeks will determine if UMW will see its plan to increase its stake in Perodua pan out.

Shares in both UMW and MBM closed higher yesterday after slipping earlier this week.

UMW rose six sen to RM6.17, while MBM was up one sen to RM2.45.