21/12/06 KUALA LUMPUR, Malaysia (AP) -- Malaysian conglomerate Sime Darby and two of its unit on Thursday agreed to sell their businesses, marking the first step toward a complex merger involving seven other companies that will create the world's No.1 palm oil producer.

In statements to the stock exchange, the boards of Sime Darby, its 51 percent-owned Sime UEP Properties and 70 percent-owned Sime Engineering Services said they accepted an offer by Synergy Drive Sdn. Bhd. to buy their businesses and would ask shareholders to consider the merger plan.

The boards of the other companies are also expected to accept the proposal in the next few days, ahead of a late December deadline for their decisions.

If approved, the deal would pool 600,000 hectares of oil palm fields in Malaysia and Indonesia owned by Sime Darby, Kumpulan Guthrie, Golden Hope Plantations and their units in a new company that would be Malaysia's fifth-biggest with a market value of over 31 billion ringgit (US$8.7 billion, euro7.3 billion).

The merger, which is pushed forward by the government, envisages Synergy Drive acquiring the assets of the three palm oil companies -- currently owned by government fund manager Permodalan Nasional Bhd.-- as well as assets of their units.

The deal, the largest merger in Malaysia's corporate history, will create an entity bigger than local industry leader IOI Corp. whose shares are worth around 22 billion ringgit (US$6.2 billion, euro5.2 billion).

Shares of Synergy Drive will be listed on the stock exchange when the deal is completed.

Some analysts were however, cautious as the integration process would be tough due to high operating costs in Golden Hope and Kumpulan Guthrie.

Malaysia is the world's top producer of palm oil, currently being developed as a top-tier replacement for fossil fuels. The merger is part of efforts to galvanize the industry amid stiff competition from rival Indonesia.

Palm oil exports are Malaysia's second-largest foreign exchange earner after electronics and are expected to bring in 21.7 billion ringgit (US$6 billion, euro5.1 billion) this year.