SC seeks to recuse judge in Sime’s E&O offer waiver suit

By Jahabar Sadiq
Editor

January 20, 2012

SC chairman Zarinah is also under pressure over her husband’s dealings in the E&O trade. — File pic

KUALA LUMPUR, Jan 20 — The Securities Commission (SC) is seeking to recuse High Court judge Abang Iskandar Abang Hashim from hearing a suit by a minority shareholder in E&O Bhd, which could delay proceedings against the regulator for failing to compel Sime Darby Bhd to buy remaining shares after it bought a 30 per cent stake in the property developer for RM776 million.

Ironically, minority shareholder Michael Chow Keat Thye’s lawyers are battling against the recusal although the trial judge used to be the SC’s enforcement director from May 2004 until he was elevated to the High Court in October 2009.

“Yes, we are fighting against the recusal. We are fine with Yang Arif Abang Iskandar hearing the case,” a lawyer for Chow told The Malaysian Insider, declining to be named as he was not authorised to speak to the media.

The recusal hearing is scheduled for March 14, the original date for the case after Chow obtained leave for his legal suit.

Sime Darby’s subsidiary, Sime Darby Nominees Sdn Bhd (SD Nominees), had applied to intervene in the judicial review on January 7, according to a filing in the Bursa Malaysia.

Singapore’s The Straits Times reported last December 23 that Chow was seeking to overturn the waiver granted to Sime Darby by the industry regulator, which he maintains was “irrational and one which no reasonable body would have reached”.

The newspaper had described the legal challenge as a rare display of minority shareholder activism in corporate Malaysia with far-reaching implications.

“Should Mr Chow succeed in his suit, Sime Darby would be compelled to make a general offer for the E&O shares it does not already own, an exercise that would cost the plantation-based conglomerate an additional RM2.6 billion and put a major strain on its internal financial position,” the newspaper said.

Chow’s lawyer, Datuk Shafee Abdullah, told The Straits Times that the High Court has decided there are legal grounds to review the SC’s decision on the E&O deal.

“We have obtained leave from the court to seek a judicial review and we will be filing our papers this week on the SC,” he said in a telephone interview with the newspaper. Shafee added that the SC would then have to refute the grounds raised by his client in the suit before a High Court judge.

“Under judicial reviews, cases are usually heard quickly. So we expect to be in court soon,” said Shafee.

Sime Darby purchased its controlling 30 per cent interest from three major shareholders, including Singapore’s GK Goh Holdings, at the end of August last year in a deal that valued E&O shares at RM2.30 apiece.

The purchase price represented a 60 per cent premium over the value of the shares in the company on the open market when the deal was announced.

The newspaper also said the minority shareholder suit is also likely to stoke growing concerns over corporate governance issues in Malaysia and renew criticisms against the SC over its supervision of the capital markets.

The E&O deal had triggered unease over the widely perceived coddling by the SC of large state-controlled companies at the expense of minority shareholders when exercising its authority on corporate takeovers.

On a separate level, the legal suit could renew debate over the SC’s handling of alleged irregular trading activities, the newspaper reported. The E&O deal has put SC chairman Tan Sri Zarinah Anwar in a tight spot as her husband, who is also the E&O chairman, raised his personal stock holdings in the company just weeks before Sime Darby announced its proposed acquisition of the 30 per cent interest in the company.

Malaysia’s takeover rules stipulate that any party that acquires more than a 33 per cent interest in a publicly listed entity must carry out a general offer for the remaining shares. A general offer can also be triggered if a new party buys less than 33 per cent but secures management control of the target company.

Sime Darby acquired its 30 per cent interest from three of E&O’s main shareholders: businessman Terry Tham Ka Hon, GK Goh Holdings and a group of investors led by businessman Tan Sri Wan Azmi Wan Hamzah.

Sime Darby’s block is below 33 per cent, while the collective shareholding of the three main shareholders of 41.7 per cent was cut to 11.5 per cent under the deal. Six weeks after Sime Darby’s purchase, the SC ruled that the plantation-based conglomerate did not have to make a general offer.

Chow is arguing otherwise and is seeking a court ruling to force the SC to revoke the waiver for a general offer. In his affidavit, he contended that the premium Sime Darby paid for the E&O block was clearly to obtain control of the company.

“If obtaining control of the company (E&O) was not the basis, motive or reason for Sime Darby’s acquisition, then it would have acquired the company’s shares over a period of time in the open market at a considerably lower price,” he stated in his pleadings to the High Court.

He also contended that Sime Darby’s equity interest “eclipses the combined shareholding of the next 30 biggest stockholders” and any denial by the conglomerate that it has a controlling stake in E&O would be “absurd”.

To further buttress his claims, he highlighted a collaboration agreement between Sime Darby and E&O.

“There is no doubt that the collaboration agreement was offered by the vendors as demanded by Sime Darby as an inducement or sweetener for the payment of the substantial premium demanded by the vendors,” he said.

In his affidavit, Chow noted that E&O had 20,302 recorded stockholders in the company.

“Except for the three privileged vendors who sold their controlling stake in the company to Sime Darby and managed to reap more than a quarter billion ringgit in premium, the rest of the 20,299 stockholders suffered a collective loss of more than RM678 million,” he stated in his affidavit.