Bakke says indications are that the PNG government, which owns around 18% of NBPOL, will remain as shareholder post-buyout.

11/10/2014 (The Star) - Sime Darby Bhd’s audacious bid for New Britain Palm Oil Ltd (NBPOL) has injected much-needed excitement into the markets that have been haemorrhaging over the last few days. Sime Darby’s offer to buy out NBPOL is rippling through the stock exchanges of Kuala Lumpur, London and the little-known Port Moresby Stock Exchange, with a total value of a whopping RM2.82bil created overnight.

This figure is the increased market capitalisation (stemming from Sime Darby’s offer) in the listed shares of Kulim (M) Bhd and NBPOL, the latter of which is dual-listed in London and Papua New Guinea (PNG).

But things could get even more exciting as rumours circulate that the other Malaysian company keen on buying NBPOL, namely Felda Global Ventures Holdings Bhd (FGV), is mulling a counter-bid.

This would lead to the prospect of two Malaysian government-owned entities fighting tooth and nail to own the London-listed NBPOL, which is not only the largest plantation group in PNG but also the largest company in that country.

The fear, though, is the prospect of overpaying for NBPOL.

Already, Sime Darby’s offer price of £7.15 (RM37.38) per NBPOL share is coming at a whopping 85% premium to the market price prior to the deal’s announcement.



A counter-bid by FGV would push NBPOL’s valuations to stratospheric levels, at least when benchmarked against what the market had been valuing the company all this while.

Also at stake is the chest-thumping value this deal would bring: the head honchos of Sime Darby (Tan Sri Mohd Bakke Salleh) and FGV (Mohd Emir Mavani Abdullah) would go down in corporate history if they manage to pull off such an acquisition.

On many counts, the attempted acquisition of NBPOL is a complex matter. There are a number of stakeholders who bear some influence over the deal.

The key stakeholder is clearly the PNG government, which owns 18% of NBPOL.

Under PNG takeover rules, the regulator there can stop any takeover of a local company on the grounds of “national interest”.

This possibly explains Sime Darby’s “stop-start” approach to the deal.

Earlier this year, Sime Darby had participated in a sale tender by Kulim for the latter’s 49% interest in NBPOL. Kulim then chose Sime Darby as the one party to enter into a two-month exclusive discussion period with. It is assumed that Sime Darby was chosen because it had put in the highest bid, which was then rumoured to be somewhere between £7.30 and £7.50.



However, Bakke at the recent press conference announcing the deal said that the price offered to Kulim previously was the same as the one being offered in this general offer exercise, namely, £7.15. Sources say FGV, which had also participated in the tender process, had then offered a lower price.

On Sept 30, Sime Darby announced that it was aborting the plan to buy Kulim’s block, without stating any reasons for the decision.

That, in turn, opened the door for other players like FGV to pursue their bid for Kulim’s NBPOL block of shares.

But then on Thursday, Sime Darby shocked the market by launching the general offer for NBPOL.

Bakke explains this puzzling turn of events as one related to the timing of an assurance from the PNG government that it would not be contrary to PNG’s national interest for Sime Darby to buy out NBPOL.

According to Bakke, this letter only arrived at Sime Darby on Oct 1, literally 48 hours after the expiry of the two-month exclusivity period with Kulim.

But shouldn’t Sime Darby then have reverted back to Kulim with the intention of extending its discussions with Kulim? After all, Kulim is a deal-breaker in any takeover of NBPOL because of its 49% block.

This is still a grey area – one source says that Kulim was insistent on ending the discussion upon the expiry of the two months, while another source says that Sime Darby reckoned that once it got the blessings of the PNG government, that its wisest move would be to launch the general offer without conferring with Kulim first.

After all, it was only the PNG government’s sanction that was standing in the way of closing the deal.

But is that one letter from the PNG government sufficient to indicate that Sime Darby had the blessings of the PNG government? Bakke says that the letter is a strong indication of just that. But the PNG government could still throw a spanner in the works if it decides to later withdraw its support for the deal.

Bakke says that indications are that the PNG government, which owns around 18% of NBPOL, will remain as shareholder post-buyout, and that he would like to see it raise its stake to around 30%. The plan is to privatise NBPOL and relist it on either Bursa Malaysia or the Singapore Stock Exchange.

Will Sime Darby gain control?

Notably, ever since Kulim acquired its block of 49% shares in NBPOL, it was never in total control of NBPOL, only having two director seats on the board of NBPOL. (Kulim had first bought a stake in NBPOL in 1996, when the latter was a small plantation company with 18,000ha of oil palm.)

Hence, this was a concern from the start: that whoever acquired Kulim’s block of shares in NBPOL could face the same predicament of not having control of an asset.

And paying top dollar for an asset you have no control over is never a wise thing.

Sime Darby’s stance on this matter is that going by the laws of PNG, any party owning more than 50% in a company is entitled to have control over the board and management of the said company.

Sceptics, though, say that in reality, this is going to be a tricky issue. “The management of NBPOL, who have a small stake in the company, are not only very capable but also determined to be the key decision-makers of the company, notwithstanding who the new owners of the company are,” says one party familiar with NBPOL’s operations.

But clearly, Sime Darby has every intention of wrangling full control of NBPOL and derive all the necessary synergies and benefits from NBPOL. This forms part of the justification for the offer price it is making.

It is also a case of a once-in-a-lifetime opportunity that cannot be missed, says Bakke (see next story).

Is Sime Darby paying too much?

Sime Darby’s explanation of the £7.15 per share price seems to have been well-accepted by most analysts. Sime Darby believes that NBPOL’s market price has been depressed for a long time because of its “illiquidity”, and hence the £3.87 per share price of NBPOL prior to the announcement isn’t a good benchmark. Furthermore, when Kulim had made a partial offer for NBPOL in August 2013, the independent board of NBPOL had advised shareholders not to accept it, holding the view that the fair value of the shares was between £6.50 and £7 per share.

Detractors, however, point to the absence of other bidders in the deal, notably the likes of Singapore’s Wilmar International Ltd and Indonesia’s Sinar Mas Group and RGE Group who had initially expressed interest. “Could this mean that they don’t see value in NBPOL at the kind of prices that Malaysian GLCs are wiling to offer?” points out one industry observer.

On the other hand, supporters of Sime Darby’s move say that it is following the footsteps of Khazanah Nasional Bhd and Petroliam Nasional Bhd when they launched seemingly pricey takeovers of Parkway Holdings Ltd and Progress Energy Resources Corp in the past. In both cases, the acquisitions proved worthy, as the asset prices rose even higher after the deals were made, vindicating the buyers.

Sime Darby had similarly surprised the market in 2011 when it acquired a 30% stake in Eastern & Oriental Bhd (E&O), paying a 60% premium over the-then market price for that block. Earlier this year, E&O’s managing director Datuk Terry Tham Ka Hon had bought back a 10% block from Sime Darby at RM2.90 per share, significantly higher than the RM2.30 per share that Sime Darby had originally paid.

In the next few weeks, it will be known if FGV does attempt to launch a new offer for NBPOL. The acquisition will be a game-changer for both Sime Darby and FGV, but don’t be surprised if neither of the two get to own the prized NBPOL, considering the few complications surrounding the asset.