Pakway episode a rude awakening for Khazanah

Wednesday June 2, 2010



Raison D'etre - By Risen Jayaseelan


THE Khazanah Nasional Bhd-Parkway Holdings Ltd episode illustrates the complexity of mergers and acquisitions and the savvy and sometimes questionable modus operandi of private equity players.



One of the main reasons that Khazanah is having to fork out some RM2.7bil to wrest control of Parkway from India’s Fortis Healthcare Ltd is because the other shareholder of Parkway, TPG Capital, has decided to exit the company quietly and quickly.



It is very likely that if Khazanah had been offered the chance to buy TPG’s stake in Parkway, it would have considered it, notwithstanding that it would have triggered a mandatory general offer.



Khazanah’s partial offer announced last week is priced 6% higher than what Fortis paid TPG for the 23.9% stake in Parkway.



Hence questions remain unanswered as to why TPG did not offer Khazanah the same deal or at least get Khazanah’s consent for the choice of Fortis as the buyer of the stake (as industry sources say).





To be sure, TPG has no legal obligation to do any of the above. But its move to sell to Fortis (and thereby indirectly spark the beginning of what could be a long-drawn and expensive battle for Parkway) does seem at odds with what was assumed to be a healthy working relationship that had blossomed since 2006 between the private equity firm and Khazanah.



In 2006, Parkway bought into Malaysia’s Pantai Holdings Bhd. Parkway emerged as the highest bidder for a block of shares from Pantai’s major shareholder Datuk Lim Tong Yong. (Incidentally, Khazanah had earlier been approached to buy Pantai but walked away from the deal due to pricing issues. It is possible that Khazanah may have had to pay more for Pantai when it subsequently bought into it.)



In 2005, Newbridge Capital (which later morphed into TPG) had emerged as the largest shareholder of Singapore’s Parkway.



Soon after the entry of Parkway into Pantai, a political storm brewed as it was alleged that since Pantai’s subsidiaries held key Malaysian government concessions, the group should not fall into the hands of foreigners, in accordance with the terms of the concessions.



Enter Khazanah to save the day. Khazanah and Parkway (led by the Newbridge brass) had come up with a clever solution to take the heat off the situation, by forming a vehicle to hold the Pantai stake.



The vehicle in turn was majority held by Khazanah. Pantai’s hospitals though would continue to be run by Parkway through management contracts.



The deal was then said to be the start of a new relationship between Khazanah and the Newbridge-controlled Parkway as it paved the way for the two to derive more synergistic benefits from each other.



No surprise then that Khazanah later ended up with a significant stake in Parkway. Both parties have seemingly worked well in building Parkway. Parkway has since formed fruitful joint ventures with India’s Apollo Hospitals, where Khazanah is a substantial shareholder.



Hence the nature of the private equity fund’s exit from Parkway in March and its choice of buyer (namely Fortis) must surely be a rude awakening for Khazanah and serve as a good lesson in how to deal with private equity funds without getting a raw deal.



·Deputy news editor Risen Jayaseelan reckons that the lesson from the Parkway saga is for all to learn that sometimes, private equity funds can be too secretive and self-centred.

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