Sime Darby - E&O: What's the REAL deal?

Eastern & Oriental Berhad (E&O) was previously just another one of those stocks in the corner of Bursa Malaysia that failed to gain much interest among punters and the media.

But not anymore: in just a couple of weeks, E&O has turned into the hottest corporate story, thanks in large part to the involvement of conglomerate Sime Darby. Unfortunately, a lot of the talk has a negative air to them; including murmurings of the abuse of position, insider trading and conflicts of interest in the deal. And that's not counting the business aspects of the deal yet, for many analysts question the rationale behind Sime Darby's latest foray into the merger and acquisition (M&A) game.

To recap, it all started when both E&O and Sime Darby announced on Aug 29 that the latter - which is the third biggest company in Bursa Malaysia in terms of market capitalisation - would be acquiring a 30 percent stake in the company. The vendors of the block of E&O shares are its managing director and founding member, Datuk Tham Ka Hon, Tan Sri Wan Azmi Hamzah who was formerly of Land and General fame and Singapore-listed GK Goh Holdings. The agreed price is at RM2.30 per share and the deal is to be completed this Friday.

The market price prior to the announcement was RM1.45. See the widget below for the latest price.

A lot of questions are being asked about the deal and the personalities involved. The Another Brick in the Wallblog, which is maintained by a blogger who wished to be identified only as "A Voice", raised some of them in the post of SDarby purchase in E&O: Strange buy and controversial figure:

• *Why did Sime Darby - the more established player in property development - forgoing management control when it has become the biggest shareholder... and having paid a premium at that?
• *According to shareholder changes filed with Bursa Malaysia, substantial shareholder GK Goh Holdings Limited had bought 1.25 million E&O shares while the latter's chairman, Datuk Azizan Abdul Rahman acquired 100,000 shares just prior to the announcement of the Sime Darby acquisition. "Is that legal, or more precisely ethical, for the company's chairman - who is also the husband to the Securities Commission (SC), Tan Sri Zarinah Anwar - to buy before a major corporate announcement?"

(LATEST: From The Star - "SC scrutinising Sime's purchase of E&O stake")

Another critic of the deal and the personalities and circumstances surrounding is the blogger "Big Dog". In his post of Smelling a rat, Big Dog said the Securities Commission "should be looking into this probable insider trading since ECM Libra already got its footing in a few months ago."

However, he added that, "then again if the deal is about the involvement of ECM Libra, it is doubtful that SC under Zarinah would actually do anything. Selective prosecution had always been the SC practice under her. For the record, in her first month in SC she ‘closed one eye’ and allowed the shoddy deal of ECM Libra taking over Avenue Capital which involved then Prime-Minister’s-son-in-law Khairy Jamamuddin five and a half years ago."

There is a lot more to this than merely a normal, straight-forward business transaction where, in a move to expand further, a local giant buys into a smaller company to synergise. Since it involves a Government-Linked Company (GLC), public money is involved. And that means OUR money. Stay tuned for more.

- Mat Cendana