KUALA LUMPUR, Nov 27 (Reuters) - Three Malaysian state-controlled plantation firms plan to join forces, creating the world's largest listed palm oil producer.

Sime Darby Bhd , Kumpulan Guthrie Bhd and Golden Hope Bhd will put their assets and liabilities into a new entity, Synergy Drive, adviser CIMB Investment Bank said on Monday.

The company would be worth $8.6 billion and account for 6 percent of global production.

The merger comes as investors bet on palm oil's use as a biofuel, rather than its traditional uses as cooking oil and makeup. High oil prices and environmental concerns have made biofuel a viable alternative as a source of energy.

Malaysia's government also wants its listed firms to group together to combine resources and cut costs, making them larger and more competitive to fend off foreign competition and to expand overseas.

"How will they compete globally if they are small? As a conglomerate they have a chance. They have to get their act together -- or else risk falling behind," said a Kuala Lumpur-based fund manager from Alliance Capital Asset Management, which has 2.3 billion ringgit in Malaysian assets. ADVERTISEMENT
 
 

Malaysia's listed plantation sector is crowded with 43 companies, most of them too small and thinly traded to register with a big offshore fund, despite a surge of around a quarter in palm oil prices this year.

"It did not happen earlier because palm oil prices were not very high but now the prices have risen, and I think it is the right time to do it," saidM.R. Chandran, former head of the Malaysian Palm Oil Association who now works as an independent industry analyst.

The merged entity, comprising nine companies, will have a market value of about 31.4 billion ringgit ($8.64 billion), 107,000 employees and about 600,000 hectares of plantations in Malaysia and Indonesia, second in size only to unlisted Malaysian state plantation firm Felda with 800,000 hectares.

By comparison, Indonesia's largest listed plantation firm, PT Astra Agro Lestari Tbk , has a market value of $1.83 billion and as at early November, manages 201,412 hectares of oil palm plantations.

MERGER PLAN

The plan rests on state investment agency Permodalan Nasional Bhd, a common major shareholder of the three firms, owning more than 45 percent of Synergy after the planned merger, CIMB said.

"The government supports the idea of a merger of these three groups, and Permodalan Nasional will thereafter benefit from the enhanced prospects for the merged group," CIMB chief Nazir Razak told reporters.

Shareholders have until Dec. 27 to accept the offer by exchanging their shares for those in Synergy, which are priced at 5.25 ringgit each. Alternatively, they can opt to cash in their stock at a 5 percent premium to the last traded price.

Shares of Synergy would be listed after completion of the planned merger, and the target companies de-listed, CIMB said.

Synergy, which will become Malaysia's fifth-largest listed firm by market value, will incorporate the plantation as well as other non-plantation assets of the three firms, but it is unclear whether the assets will be spun off or retained, Nazir said.

CIMB said Synergy would have 2 billion ringgit in profits annually.

Assuming all the shareholders swap their stock for shares in Synergy, Sime, currently Malaysia's 11th-largest firm by value, should comprise 57 percent of the merged entity, Nazir said. Golden Hope should account for 28 percent and Guthrie 15 percent.

The nine companies in the planned merged unit are Sime and its Sime Engineering Services Bhd and Sime UEP Properties Bhd units, CIMB said.

They also include Golden Hope and its Negara Properties Bhd and Mentakab Rubber Co. Bhd units, and Guthrie and its Guthrie Ropel and Highlands and Lowlands Bhd units.

Malaysian crude palm oil futures jumped 4.7 percent on Monday to hit a fresh high in more than 2-½ years, boosted by firm soyoil prices on the Chicago Board of Trade.

(Additional reporting by Naveen Thukral) ($1=3.633 Malaysian Ringgit)