29/11/06 KUALA LUMPUR (AFP) - Malaysian investors expressed caution over a proposed merger to create the world's largest palm oil firm, saying that "size does matter" but a smaller company might be more profitable.

The merger of Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd is aimed at boosting Malaysia's status as a top palm oil producer amid growing regional competition.

Lim Hua Seng, president of the Malaysian Investors' Association, said he was worried whether investor interests would be safeguarded in the 31.4 billion ringgit (8.6 billion dollars) plan announced Monday.

"All the investors' interests should be looked into in order to arrive at a fair value for the takeover," he said in a statement.

Lim said some of the plantation land banks are close to major towns and could be more profitably used for property development rather than agriculture.

CIMB, the investment bank acting as an advisor to the deal, said the merger would create a global leader in oil palm plantations, with potential annual revenue of over 26 billion ringgit.

Lim said the association was "fully aware that size does matter."

However, in Malaysia's agriculture sector, "bigger sized companies are being outperformed by the medium sized ones," he added.

"The average crude palm oil and palm kernel yields per hectare of Sime Darby Bhd, Golden Hope Bhd and Guthrie Bhd over the recent years were lower than the plantation top players like IOI Bhd and United Plantation Bhd," he said.

"The bottom line in the plantation sector depends on efficiency in effective management, yields and commodity prices."

Permodalan Nasional Bhd (PNB), the government investment vehicle which is the majority shareholder in all three merging companies, said Tuesday it will support any move that enhances efficiency and offers better value.

"The most important thing is the result. We want to see enhanced economic value created," said its president Hamad Kama Piah Che Othman, adding it would remain the major shareholder in the merged entity.

"Hopefully, we can better penetrate the world market in concerted efforts and get the market share we expect," he said.

CIMB has dismissed suggestions the merger will lead to mass layoffs among the 107,000-strong staff but Othman said PNB would leave any decision to the boards of the various companies.

"They will know more about the position and the impact on these people. The thing is when you are together under one roof, cost-cutting will come in handy," he said. "Definitely, we cannot have three research houses."

With plantations amounting to about 600,000 hectares (almost 1.5 million acres), the new firm would control about six percent of the world's crude palm oil supply.

Malaysia's palm oil production accounts for about half of global output and is on track to hit a new record of 15.1 million tonnes this year amid strong demand from the global food, bio-diesel and oleochemicals industries.

While Malaysia is the world's biggest palm oil producer, Indonesia is expected to claim the top spot next year due to the aggressive expansion of its plantations.