Tuesday February 8, 2011
Raison D'etre - Risen Jayaseelan
IT has been written that directors should be doing their part in overcoming one particular problem posed by takeovers under the assets and liabilities route.
Following from that, perhaps the authorities should consider coming up with a set of guidelines to help directors play their part.
Here's the issue - sometimes bidders make an offer for the asset of a company, providing an indicative price, but then walk away from the deal for various reasons.
In such instances there is concern that bidders may be rigging the market or creating a false market for the shares.
Bidders though are entitled to walk away from deals if they discover something they don't like.
For example, if a due diligence shows up a weakness in the company, then the buyer is perfectly entitled to not buy the asset.
Arguably, if the buyer walks away, the target company should be compensated, and this is the practice in mature markets where failed bidders are made to pay a “break-up” fee.
Aside from the break-up fee, directors can also insist that bidders pay a deposit and show proof of their funding capabilities.
This is to ensure that they can really afford to go ahead with the deal.
This way, potential bidders will be dis-inclined from putting bids they are not really keen on seeing through and this, in turn, prevents the creation of a false market for the shares of the target company.
But to help directors play this role effectively, perhaps Bursa Malaysia should come up with a new set of guidelines for directors.
To be sure, there already are guidelines and rules on how directors should exercise their fiduciary duties and one could argue these guidelines already cover instances of when directors are faced with buyout offers for their companies' assets.
But perhaps a set of specific guidelines for these instances should be drawn up, listing down the many conditions that directors can impose on bidders, such as mentioned above, namely, insisting on a break-up fee and/or a deposit from the bidder as well as asking the bidder to show proof of funding, among other things.
The guidelines could draw from the best practices of real life cases in other markets, and from suggestions of M&A experts as well as minority rights activists.
The guidelines could also drill down further by suggesting formulas on determining the quantum of a deposit required or break-up fee.
Cases such as last year's failed acquisition by UK's Prudential to buy a unit of AIG that had cost the former a break-up fee of US$230.6mil should be studied closely.
Such a move would go some way in helping directors exercise their fiduciary duties and thereby enhance the level of corporate governance and minority rights protection in the country.
Deputy news editor Risen Jayaseelan reckons that if such guidelines were to be drawn up, perhaps the independent directors of PLUS Expressways Bhd should be invited to play a big role in drafting it, considering the good work they had done recently in the takeover of their company.
http://biz.thestar.com.my/news/story.asp?file=/2011/2/8/business/8019067&sec=business
1 comment:
Good article. My comment is that maybe the author just looks at financial perspective only. But as far within my understanding and knowledge, normally every acquisition and merger will be initiated based on the following motives:
1. Value maximising behavior to the shaheholders.
2. Non-value maximising behavior to the sharehoders. But it can be seen to maximize value to the stakeholders such as government, customers, users etc. However the majority of shareholders cum also stakeholders(like Khazanah, EPF,etc), may see that this corporate exercise will maximize intangible value such as government image (In case of PLUS takeover by UEM and EPF), to prevent toll hike.
The basic things that every businessman/women must understand is that, sometime we need to balance between Political(P), Economic(E), Social(S) and Technology(T) when analyse something.
Post a Comment