INDIVIDUAL ASSIGNMENTS

Zczc Securities Laws

Going Private and Impact to minority shareholders in Malaysia

Prepared For: Associates Prof Dr Hasani bin Mohd Ali

Prepared By: Zaimah Binti Mohd Nor- ZP00361

1.0 INTRODUCTION 1.1 Background Privatisation of Malaysias public listed companies was a relatively new phenomena and/or trend that started in 2006 and picked up speed in 2007 throughout 2008. The number of public listed companies going private has increased sharply in recent years. Since the beginning of 2007, there was a series of privatisation of public listed companies on our local bourse, Bursa Malaysia. In that year, there were more than 20 companies going public. Privatization of these companies signals a very mature and robust financial market, with a favourable credit market. Due to privatisation, some RM46.29 billion has been wiped out from Bursa Malaysia's market value in the first half of the year as 17 firms were taken private, a stock exchange official said. The cycle of privatisation will turn when interest rate goes up and companies find it more expensive to raise funds from the credit market. Selvarany Rasiah, Chief Regulatory Officer of Bursa Malaysia. [1] The privatisation continued through 2008 with 21 privatisation proposals on the Bursa Malaysia. The owners of the companies also vary from the likes of government linked investment companies such as PNB, the government investment arm Khazanah, as well as companies owned by local tycoons or are family-controlled. The most common reason for a company going private is when the owner(s) believe that the share price of the company is too low, hence not reflecting its fundamental value. [2] Recently, the number of companies going public is quite similar to the number of IPO. There were 13 companies have been listed on the Main Market of Bursa Malaysia since last October to April this year while more than 10 Main Market companies received privatization proposals in that same duration. According to Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose, he said that a reason for the slew of privatization was because those stocks were trading at valuation discounts in comparison to regional peers. [3]

2.0 Definition of going private Going private transactions describe the process of private equity firms, major shareholders, management, or affiliates of a publicly held company taking the company private by buying out the publics stockholdings. In Malaysia going private transaction typically encompasses: a) the drastic alteration in the ownership structure of the public company ; and b) the removal from the official list of the Bursa Malaysia Securities Berhad (Bursa Malaysia) where the company is listed. 3.0 Why Are Public Listed Companies Going Private? There are many reasons why public listed companies going private. They are as follows: 3.1 Ability to raise funds in the public market can be outweighed by the costs involved in complying with the company and securities law requirements. Listed companies are subject to the myriad of rules and regulations imposed by Bursa Malaysia in the form of the Bursa Malaysia Listing Requirements (the Listing Requirements) as well as regulations and guidelines administered by the Securities Commission (SC). The Listing Requirements impose requirements for shareholders, board and regulatory approval in respect of certain transactions, continuing disclosure obligations, related party prohibitions and quarterly tests on earnings of listed companies. As a result, particularly in the case of small to medium size companies, it is perceived that the advantages or value associated with the ability to raise funds in the public market can be outweighed by the costs involved in complying with the company and securities law requirements. Below is the Bursa guidelines listing requirement which compulsory to comply if the company is a public listed that need high cost:3.1.1 The Bursa Listing Requirements Below are the guidelines for Public listed Company under Bursa Malaysia Listing Requirement for public listed companies which had to adhere to, compulsory:2

a) Under Chapter 9 of the Bursa Malaysia Listing Requirements which sets out the continuing disclosure requirements that must be complied with amongst others, by a listed company, its directors and advisers. 9.02 - Corporate Disclosure Policy b.03- Immediate disclosure of material b) Chapter 10 of the Bursa Malaysia Listing Requirements which sets out the requirements that must be complied with in respect of transactions entered into by the listed company. 10.04 - Requirements in the case of transactions exceeding 5% 10.05 - Requirements in the case of transactions exceeding 15% 10.06 - Requirements in the case of transactions exceeding 25% c) In terms of disclosure to or informing the public, the Bursa Malaysia Listing Requirements requires a listed company to make immediate announcements of all information which would reasonably be expected to have a material effect on the price, value or market activity of the listed company. In addition, the listed company is required to make immediate announcements of a transaction (as defined in under Chapter 10 of the Listing Requirements), where the percentage ratio is equal to or in excess of 5%. A company is required to issue a circular to its shareholders by setting out the information e transaction if the percentage ratio of the transaction is equal to or exceeds 15%. Subsequently, the listed company must seek an approval from its shareholders if the percentage ratio of the transaction is equal to or in excess of 25%. In the case of related party transactions, a listed company is required to make an immediate announcement regardless of the percentage ratio and it must seek an approval from its shareholders if the percentage ratio is equal to or exceeds 5%.

Looking to the above requirements set by SC, the rules can be a burden to public listed companies. The ability to raise funds in the public market can be outweighed by the costs involved in complying with law requirements. That is why certain companies in Malaysia chose to going private. 3.2 Ability to make decision without losing precious time Such requirements imposed on listed companies leave the companies with little breathing space and make it difficult for companies to make major decisions such as expanding overseas, acquiring new businesses or obtaining new shareholders without losing precious time in these pursuits. By going private, the companys major shareholders are able to focus on taking bigger strategic risks in order to reap long-term profits without facing intense scrutiny of public shareholders and being constrained by the need to consider how a proposed transaction might affect the quarterly earnings or the volatility of the share price of the company. 3.3 Opportunities and Advantages Abroad Apart from the push factor above, there are also attractive pull features of other stock exchanges in terms of market diversity and activity. Notwithstanding the recent flurry of activity on Bursa Malaysia over the last year, statistics compiled by Bursa Malaysia have suggested that the previous lacklustre state of the market may have caused listed companies to set their sights on other more exciting markets in the region such as Singapore and Hong Kong as well as sub-markets such as the London Alternative Investment Market (AIM) which is generally perceived as more flexible and imposes less regulatory burdens. 3.4 Bring the share price close to the companys intrinsic value The most common reason for a company going private is when the owner(s) believe that the share price of the company is too low, hence not reflecting its fundamental value. By privatising, it is hoped that the price can be brought closer to the companys intrinsic value. According to Aberdeen Asset Management Sdn Bhd managing director Gerald Ambrose, he said that a reason for the slew of privatization in Malaysia was because those stocks were trading at valuation discounts in comparison to regional peers.
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3.5

Protection from takeover Owners of company may also consider privatising their companies as a protection measure against takeover attempts. The procedure to take over a private company is different to take over a public listed company.

3.6

Owner enjoy high and stable earning Some owners they want to enjoy high and stable earning through going private. In the case of Maxis, the company was taken private as the owners visions on the companys business expansion differ from the objectives of investors, who may be more keen in receiving high, stable dividend income.

3.7

To enhance the groups earnings performance and create greater synergies Privatisation exercises involving holding companies buying out their subsidiaries such as the privatisation of E&O Properties Bhd and Boustead Properties Bhd were intended to enhance the groups earnings performance and create greater synergies.

3.8

Protected from the exposure to stock market fluctuations By going private, the company can avoid the exposure to the market fluctuations

3.9

Lack of analyst coverage Lake of analyst coverage for some companies (e.g. small and mid-cap companies in some sense, orphans of the public market) leads to limited institutional opportunities, which leads to less attention from the market, fewer buyers, lower share prices and low trading volume

4.0

Regulation governing Takeover and Merger transactions in Malaysia The main regulations governing M&A transactions in Malaysia include the Companies Act 1965, the Capital Market & Services Act 2007 (CMSA), the Guidelines for the Acquisition of Assets, Mergers and Takeovers issued by the Foreign Investment Committee of Malaysia (FIC Guidelines), the Malaysian Code on Takeovers and Mergers 2010 (Take - over Code) and the Listing Requirements of the Bursa Malaysia Securities Berhad (Bursa Malaysia) for public listed companies.
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Section

216 of the CMSA and the Companies Act 1965 govern M&A transactions that involve the sale or purchase of substantial assets by a public company while Section 217 of the CMSA and the Take-over Code regulate M&A transactions that involves the acquisition of voting shares which results in a change of control in a company. These regulations are put in place to protect the interests of shareholders and to ensure that all take-overs and mergers take place in a competitive, informed and efficient market. Also, the laws and regulations are to ensure all shareholders of a company involved in a take-over and merger situation receive fair and equal treatment. 5.0 Considerations In Taking A Public Listed Company Private The conducts of takeover schemes are regulated by the Securities Commission and are subject to the Malaysian Code on Take-Overs and Mergers 2010 and Companies Act 1965. There are three types of considerations in taking a public company private. There are: 1) Acquiring the company 2) Voluntary offer 3) Acquisitions of assets 5.1 Acquiring The Company The process of taking a company or an asset private will inevitably involve acquisitions. In the case of a listed company, apart from the trading of its shares on the stock market, the shares can be acquired by way of private treaty deals (also known as direct business transactions) in compliance with the rules of the Bursa Malaysia for such transactions. 5.1.1 Mandatory Offer In the context of a privatisation exercise, depending on whether the acquirer already holds shares in a target company, the acquisition may be structured in such a manner that the acquirer first acquires a controlling block from the existing majority shareholder. The completion of such acquisition then triggers an obligation on the part of the acquirer to make a takeover offer to acquire the balance of the shares of the target company that are not already held by the acquirer. This is described as a mandatory offer, that is, an offer
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that has to be made under section 33B of the Securities Commission Act 1993 (the SCA). Further, this mandatory offer must comply with the requirements stipulated under the Malaysian Code of Take-overs and Mergers 2010 (the Code) which is the subsidiary legislation issued under the SCA to govern take over exercises in Malaysia together with the various practice notes issued thereunder. Section 9 (1) of the new TOM ode provides that a mandatory offer may be triggered where: an acquirer obtained control of a company, which in relation to the acquisition of shares, means the acquisition or holding of, or entitlement to exercise or control the exercise of, more than 33% of voting shares in the company; and holds more than 33% but less than 50% of the voting shares of a company, and such acquirer acquires in any period of 6 months, more than 2 % of the voting shares of the company. Example of the mandatory is the mandatory take-over offer by Daikin Industries Ltd to acquire the remaining voting shares in OYL Industries Berhad pursuant to the completion of its acquisition of the first block of the OYL shares through the private treaty deal entered in October 2006. 5.1.2 Voluntary Offer Alternatively an offeror may make a voluntary offer to the shareholders of a target company to acquire their shares. This offer may be a voluntary offer to acquire all 100% shares in the issued capital of the company. One of the example is the voluntary take-over offer by Malaysia Retail Group Limited of all 100% voting shares in Courts Mammoth Berhad. Under the new code (Malaysia Code On Take-Overs And Mergers Code 2010), offeror entitled to make voluntary offer conditional upon receiving acceptances which would result in the offeror holding in aggregate more than 90% of the voting shares of the offeree. The Code prescribes certain procedures to be followed within certain time frames in respect of the take-over exercise which include provisions on making announcements, sending notices and the offer document to shareholders, terms of the offer and the offer period.
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Generally, the take-over exercise may take between three to four months to complete. The aim of most take-over offers is to garner sufficient acceptances to be able to acquire 100% interest in voting rights of the target company. If there is no single controlling shareholder and the shares are widely dispersed the chance of success is higher. However, the offeror has to be prepared to face potential difficulties involving the minority shareholders. Whilst it would make sense for the majority shareholders to privatise their companies only if they benefit from the bargain, there may be various reasons for minority shareholders to oppose a take-over offer. Usually, if the level of acceptances is high and the offeror has stated its intentions to privatise the company, the minority shareholders are more likely to accept the offer. The root of the disagreement is usually the offer price. Minority shareholders may refuse to accept the offer in hopes that the offeror will be forced to raise the offer price in order to achieve the requisite level of acceptances for a successful take-over. This was seen in the take-over of Malaysian Oxygen Berhad, in 2007, where AGA Aktiebolag raised the offer price for the remaining shares it did not own pursuant to a revised offer and this led to the receipt of acceptances from certain substantial shareholders who initially did not accept the original offer. 5.1.3 Acquisition Of Assets An acquirer can also obtain control of the assets of a public listed company by purchasing those assets. From the perspective of the acquirer, structuring the transaction as an acquisition of assets or business has certain benefits. In particular, there is a lower threshold required for success compared to the take over offer for the shares as only a simple majority by way of an ordinary resolution is required at the shareholders meeting of the vendor company. This structure also gives the acquirer the ability to choose the assets and liabilities to be taken over. As for the listed company, benefit of its core assets or business, the listed company may or may not be able to
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maintain its listing status. There will be a combination of steps and arrangements to de-list such an entity and to distribute the cash from the disposal to its shareholders. If necessary, it will then be followed by liquidation process. 5.1.4 Scheme Of Arrangement A scheme of arrangement under section 176 of the Companies Act 1965 (Companies Act) is essentially an arrangement or compromise proposed between a company and its shareholders or any class of them. If this route is to be taken, the acquirer will need to establish an agreement with the major shareholders of the target company for the major shareholders to initiate the section 176 scheme for the company. Once a scheme under section 176 is approved by the statutory majority of shareholders of the company at a meeting that is properly convened and sanctioned by court, it will bind all the shareholders of the company affected by it notwithstanding that some of the shareholders may have voted against it. A section 176 scheme is useful in so far as it avoids the requirement of 100% approval. In the case of public listed companies where it is difficult to obtain approval from all shareholders due to the large number of shareholders involved, the lower threshold would be particularly advantageous. However, an acquirer may be deterred from employing the use of a section 176 scheme of arrangement as the entire process can be fairly convoluted and lengthy. Separate class meetings must be held if there are various classes of shareholders and the approval of each class must be obtained. Additionally, in a section 176 scheme, the acquirer may not have full or total control of the processes involved as the scheme is to be implemented by the target company. Under the new code (Malaysia Code On Take-Overs And Mergers Code 2010), A takeover offer is given a wider definition. Section 44 of the new code currently includes a scheme of arrangement, compromise, amalgamation and selective capital reduction within the definition of a takeover.
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5.2 Compulsory Acquisition In the case of a take-over exercise where the offeror has received acceptances totalling 90% of the remaining shares (excluding the shares already held by the offeror and its nominee or related corporations), section 34 of the SCA provides that the offeror may apply to the court to compulsorily acquire the shares of the remaining shareholders. There are prescribed forms which must be sent out within a time period of 2 months. The court may only grant an order upon being satisfied that : (a) the failure of the offeror to obtain such acceptances was due to the inability of the offeror to trace one or more persons holding shares after having made reasonable enquiries; (b) the shares acquired under the offer and shares held by the untraceable persons meet the 90% threshold; and (c) the offer price is fair and reasonable. The court will also consider whether it is just and equitable to do so having regard to the number of shareholders who have been traced but who have not accepted the offer. Where the offeror has not achieved the requisite level of acceptances, the compulsory acquisition option is not available to acquire the remaining shares from the minority shareholders. In such a case, the offeror may have to revise the offer price. However, if this is done, the effect of section 20 of the Code would be that the offeror will have to increase the consideration that is to be paid for the acceptances which have been received to not less than the highest price paid or agreed to be paid by the offeror during the offer period. 5.3 Exit offer and De-listing Where the offeror achieves more than 75% but less than 90% acceptances, the offeree may not be in compliance with the 25% public spread requirement under Paragraph 8.15 of the Listing Requirements. In such an event and as part of the efforts to acquire all the remaining shares from the minority shareholders, the offeror may propose to the offeree to apply for a voluntary withdrawal from the Official List of Bursa Malaysia. The voluntary withdrawal procedure is outlined
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under Paragraph 16.05 of the Listing Requirements and necessitates the offeree convening a general meeting of its shareholders to obtain the approval of the proposed withdrawal by way of a special resolution. It should be noted here that the special resolution in conjunction with the proposed withdrawal has additional features and requirements and is different from the special resolution under the ambit of the Companies Act. Notwithstanding the fact that theshareholders in favour of the resolution hold more than 75% in value of the shares of the shareholders present and voting, the offeree must ensure that (a) the shareholders in favour of the resolution represent a majority in number ; and (b) the resolution is not objected to by more than 10% of the value of the shareholders present and voting at the meeting. Where either of these additional conditions is not complied with, the resolution fails and the offeree may not undertake a voluntary withdrawal and will have to explore other options to comply with the public shareholding spread requirement under Paragraph 8.15 of the Listing Requirements. As part of the voluntary withdrawal process, the shareholders of the company are to be offered a reasonable cash alternative or other reasonable alternative (referred to as Exit Offer). Upon the resolution being passed, the Exit Offer would be made to the offerees shareholders to provide another opportunity to the shareholders to realise their investment and to avoid holding unlisted shares of the offeree. The Listed Company may submit an application to Bursa Malaysia to request for the withdrawal of its listing from the Official List pursuant to Paragraph 16.06 of the Listing Requirements upon fulfillment of all the conditions outlined in Paragraph 16.05 of the Listing Requirements. Subject to the receipt of the requisite level of acceptances under the Exit Offer, the offeror may be able to invoke the compulsory acquisition procedure under section 34 of the SCA.

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6.0

The impact of going private to minority shareholders The impact of going private to minority shareholders can be negative and positive. 6.1 Negative impact There are several negative impacts to minority shareholders if the public listed companies going private. They are: a) Generally, minority shareholders may be sad when companies with strong financial performance, paying good dividends are taken private. A good example is Maxis, considered one of the best blue chips listed on Bursa Securities was taken private in 2008. The minority shareholders that have to choose to sell their shares cannot enjoy good dividends from the companies b) For shareholders who chose to maintain their shares cannot enjoy the liquidity of the securities or stocks owned by them anymore. There is no secondary market for the stocks anymore. c) The minority shareholders are not fully protected by the action taken by the majority shareholders because the directors of a private company are not subject the Bursa Listing requirements in order to make certain actions or decisions in their business as stated in Chapter 9 and chapter 10 of the Bursa Malaysia Listing Requirements. d) If the company is not subject to Bursa Malaysia Listing Requirements and SC regulations, the minority shareholders will not have much avenue to complain. e) In the process of the takeover, if the minority shareholders don't want to sell, then their shares can be mandatory acquired when certain thresholds are breached. Therefore we can say that, in the process of going private the minority dont have much choice to choose. f) Sometimes the minority shareholders not satisfy with the exit price. For example, the Minority shareholders were upset with the takeover of PK Resources Bhd, where the offer price was below the closing price (when the

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proposed takeover was announced) and also far too low compared to the NTA of the company. g) Sometimes advisers are supposed to come with unbiased reports, but in almost all cases they are hugely biased, favouring the major shareholders, urging the minority shareholders to indeed accept the (very) low offer price. (PK Resources Bhd) h) Sometimes the board of directors who supposed to do their fiduciary duty failed to do so, especially regarding the exit price. For example, in the takeover of PK Resources Bhd, the Board decision was not unanimous, with a few directors of PK Resources advising minority shareholders to reject the offer and some had advised the minority shareholders to accept the offers. i) There is a huge information bias, the majority shareholder has much more inside information about the company (both about the current conditions and the future outlook) than the minority shareholders SC didnt proposed the appropriate exit price 6.2 Positive Impact Nevertheless, shareholders can appreciate that privatisation is a mechanism for the owners to pursue their objectives and targets; to further reflect the true worth of the company and possibly, the good companies may make a comeback to the corporate scene with bigger and better value propositions to investors. However, normally the benefit goes to majority shareholders. Since the privatisation of a public might give the positive and the negative impact to minority shareholders, the most important element in the takeover is pricing. Minority shareholders will be more willing to let go of their shares if they view that the offer price is fair to compensate for their loyalty for investing in the company.

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7.0

Are the minority shareholders are fully protected in going private process in Malaysia? In order to decide either the minority shareholders are fully protected in going private process, we have to look to the act and regulation in Malaysia regarding TOM procedure because privatisation have to go through the takeover process. The real scenario in Malaysia (regarding going private) and exit price also will be analysed to see either the going private process favour minority shareholders or not. 7.1 Protection to minority shareholders due to different method in a takeover The takeover and merger in Malaysia is subject to the guidelines given by the regulators in Malaysia such as SC, Bursa Malaysia and SSM. It that must be followed by parties that involved in Takeover and Merger process. The purpose of the guidelines is to protect the minority shareholders interest. Below are the protection given to minority shareholders in takeover process. 7.1.1 Equal treatment of shareholders The takeover law in Malaysia requires equal treatment of shareholders. This has been mentioned in S33A (5) c of the SC. Following this principle, all shareholders of the target enjoy an equal right to sell their shares at the same price to the bidder. Where an offer is revised during the offer period, the bidder is bound to pay those shareholders who have accepted the offer the same revised price. The right to equality of treatment is enjoyed by the target shareholders even after the offer lapses. This occurs where the bidder exercises its right to the compulsory acquisitions of the remaining shares to squeeze out the dissenting shareholder from the target company. The law requires the bidder to offer the dissenting shareholders the same price offered to the accepting shareholders.

Furthermore, S217 (5) (c) and (d) declare that there would be fair and equal treatment of all shareholders, in particular, minority shareholders, in relation to the take-over offer, merger or compulsory acquisition. The section continues on explaining that, the directors of the offeree and acquirer shall act in good faith to observe the objects, and the manner in which they observe the objects and that minority shareholders are not

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subject to oppression or disadvantaged by the treatment and conduct of the directors of the offeree or the acquirer.

7.1.2 Protection in compulsory acquisition Another protection given to the shareholders of a company can be seen in the law relating to compulsory acquisition of shares. According to S 222(1) of CMSA, the offeror may, at any time within two months from the date the nine-tenths in the nominal value of those shares have been achieved, give notice in the manner prescribed under the Code to any dissenting shareholder that it desires to acquire his shares together with a copy of a statutory declaration by the offeror that the conditions for the giving of the notice are satisfied.

Where an intention to invoke section 222 of CMSA is disclosed in the offer document, the offeror shall make an announcement when he becomes eligible to invoke the compulsory acquisition, by way of a press notice; and if the securities of the offeree or the offeror are listed on the relevant stock exchange of Malaysia, to the stock exchange in Malaysia. (TOM-PN 32). Furthermore, the offeror must make another announcement on whether he is still eligible to undertake the compulsory acquisition at the close of the take-over offer. Where the dissenting shareholders challenge the bidders right to compulsorily acquire their shares, the law provides avenue for them to bring the matter to Court as laid down in S 224 of CMSA. The Court is also given the discretion to vary the terms of the offer. The burden of proof, however, lies upon the applicant or dissenting shareholder to show that the offer is not fair. This is not an easy task for the applicant since the 90 per cent acceptances will be generally taken by the Court as evidence that the offer is fair. Nevertheless, the Court plays an important role at this stage to ensure that the minority shareholders are not oppressed.

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7.1.3 Protection in mandatory bid This rule allows the target shareholders who wish to exit the company to do so where an acquirer has gained control in the target company. In other words, the mandatory bid rule prevents the bidder from acquiring control over the whole of the company by purchasing only a proportion of the shares unless the bidder makes an offer to the remaining shareholders of the target company. The law presumes an acquirer to have control where the acquirer acquires or holds more than 33 per cent of the shares of the target company. Not only does the Code allow the shareholders to exit the company, it also provides guidance on the minimum price for the shares of the target.

The Code requires the acquirer or the bidder to offer to the target shareholders, the highest price paid by the bidder for the shares of the target six months prior to the making of the offer or during the offer period. Assuming that the bidder has purchased shares from an existing controlling shareholder who allows the bidder to gain control, the law affords the remaining shareholders in the target company the right to sell their shares at the highest price the controlling shareholder receives for his or her shares in the target. It must, however, be noted that where there is a single controlling shareholder in the target, the minority shareholders may be at a greater risk of exploitation especially where it involves a distressed seller.

7.1.4 Protection against misleading and false information In order to ensure the shareholders right to seek information for rational decision is exercised, Section 33E of SCA, 1993 as well as section 221 of CMSA, 2007 laid down rules on that matter. These sections elaborate that all documents or information required to be submitted to the SC in relation to, or in connection with, a takeover offer shall not contain any false or misleading information. Not only that, these provision warns the responsible persons ( such as the bidder, persons acting in concert and advisers) not to engage in misleading or deceptive conduct. All of these provisions is for the purpose of protecting shareholders.

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7.1.5 New Code has reduced the payment period of takeover The new code has reduced the payment period of takeover. According to section 21 (5) of the New TOM Code 2010 it reduced from 21 days to 10 days for cash consideration and according to section 21 (6) of the new TOM code it reduced the payment periods from 21 days to 14 days for

securities or a combination of cash and securities consideration.

7.1.6 Scheme of arrangements The Securities Commission now regulates schemes of arrangement, compromise and amalgamation; and selective capital reduction exercises which are treated as takeover offers and the 2010 Code imposes higher shareholders approval thresholds than that previously imposed under the Companies Act, wherein approval for the scheme or exercise now requires an affirmative vote of at least 50% in number and 75% in value of votes attached to the disinterested shares and not more than 10% of votes cast against such resolution.

7.2

Privatisation issue in Malaysia There are two issues arise in the privatisation of public listed company in Malaysia. They are as follows: 7.2.1 Reason for privatisation in Malaysia Below are the statement made by the Khazanah Nasional Bhds MD Tan Sri Azman Mokhtar. This statement can give us one picture why companies in Malaysia going private. (Source: Business Times 1/4/2010). Pay television operator Astro All Asia Networks plc is best taken private at this stage of its development, the chief of its major shareholder Khazanah Nasional Bhd said .

"We feel in its current stage of development with high definition television and the Indian investment, it is time when it needs to be taken off the market. I think you get better value ... but the debt market gets developed
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as a result," managing director Tan Sri Azman Mokhtar told reporters on the sidelines of the Invest Malaysia conference yesterday. "But you can see the track record of the Usaha Tegas group ... they eventually go back for a listing," he said, referring to the recent re-listing of the group's Maxis Bhd. Khazanah, which owns about 21.4 per cent of Astro, together with other owners Usaha Tegas Sdn Bhd and Bumiputera foundations had on March 17 offered to buy out minority shareholders of Astro at RM4.30 a share. Astro closed up 2 sen at RM4.28 yesterday. Based on the above statements, we can conclude that From corporate governance point of view the implication are simply horrific. The Corporate governance guidelines in Malaysia do not protect minority shareholders. Like there is sort of game going on. The big players (the majority shareholders) can list, privatize and relist companies at will, at a moment and price that is convenient for them without thinking the minority shareholders interest. If they think they can get fund from other sources such as debt, they will leave the share markets and re-list if the debt market do not favor them. The minority shareholders are kicked out when they are not needed. 7.2.2 Exit price Since the privatisation does not favour the minority shareholders, they must be paid with high premium. However, there are sometimes the minority shareholders were not satisfied with the exit price in Malaysia. Example in Malaysia: a) minority shareholders were upset with the takeover of PK Resources Bhd, where the offer price was below the closing price (when the proposed takeover was announced) and also far too low compared to the NTA of the company. In this case, the independent adviser for minority shareholders had advised them to reject the offer. Interestingly, the
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Board decision was not unanimous, with a few directors of PK Resources advising minority shareholders to reject the offer.

b) The privatisation of construction and engineering firm Ranhill Berhadoffer price at premium of 15.5 sen or 21% over 74.5 sen. The minority shareholders not satisfied with the price and claim that offer bids should be allowed to come in, giving minorities an opportunity to exit the company at possibly a better price. 7.3 Limitation of the Code Several changes have been made to the Malaysian Takeovers and Mergers Code, which now requires companies to adopt a higher level of disclosure and makes independent directors more than just rubber stamps. According to the Securities Commission (SC), key changes incorporated into the Malaysian Takeovers and Mergers Code 2010 benefit shareholders and include protection for investors of foreign companies and real estate investment trusts listed on Bursa Malaysia, shorter settlement periods and enhanced disclosures offer documents and independent advice circulars. The new regulations, which come into force in Dec 2010, replace the Malaysian Code on Takeovers and Mergers 1998.

However, the changes do not address the controversial issue of preventing the privatisation of companies via the asset and liability (A&L) route, which is part of the Companies Act. According to bankers familiar with the regulations, the SC is looking at curtailing the takeover of companies via the A&L route through changes to listing requirements as it would be less cumbersome. Changes to the asset-disposal route cant be done as we cant touch on the Companies Act (CA), said one banker.

The controversy surrounding the takeover or privatisation of companies via the A&L route lies in the fact that it requires only the approval of 50% of shareholders plus one share. Other takeover methods require at least 75% shareholder approval.

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8.0 Conclusion

There are many reasons why a public listed companies going private. The reasons are more favourable to majority shareholders. The privatisation gives mostly negative impact to shareholders minority such as there are not much avenue to complain because they are not protected under Bursa Listing Requirement anymore. In privatization of a public listed company, the minority shareholders in Malaysia are not fully protected in term of exit price premium. The SC cannot decide either the exit prices are appropriate or not. The independent advisor such as SC should be appointed to come with unbiased report especially about the appropriate exit price. The companies in Malaysia also has been taken private without proper reason such the privatisation of Astro as mentioned earlier in this study.. Below are the recommendations in order to make sure the minority shareholders are fully protected in case of listed company going private: The independent advisor should be appointed to come with the appropriate exit price. The price offered should be fair and reasonable, beyond any doubt:

It should be at a clear premium to its average last traded price The price should not be at a discount to its net asset value. The Board of Directors should have made attempts to unlock the value of the assets (for instance by holding auctions). The board of directors should play their role to protect minority shareholders. The companies should not be taken private, unless there is a very clear reason for it. For example, only the company has hardly any business left and the liquidity of the shares extremely low are allowed to going private.

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Reference 1. Business Times Malaysia 20 June 2007, Privatisation wipes out RM46.3b from KL stock market. 2. The Star online, Saturday July 26, 2008, Going private: A dilemma to minority shareholders 3. The star Online, Tuesday April 12, 2011, Almost as many companies taken private as IPOs the past 6 months 4. 5. 6. 7. 8. 9. 10. 11. 12. Securities Commission Act 1993 Malaysian Code on Take-overs & Mergers 1998 and 2010. Practice Note, Bursa Listing requirement Capital Market and Services Act 2007 Company Act 1965 Securities Industry Act 1983 Bursa Malaysia Website - Listing Requirement Securities Commission Website
SC Public Response (Paper No. 2/2011) - Proposed Updates to Guidelines on Contents Of Applications Relating To Take-Overs And Mergers

13.

SC Public Response (Paper No. 3/2011) - Proposed Amendments To Bursa Malaysia Securities Berhad Listing Requirements On Privatisation Of Listed Companies Via Disposal Of Assets

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