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Thursday, November 29, 2007

Better offer by E&O under latest revamp plan

Under a proposal to merge with listed property arm E&O Property Development Bhd, it offers options to cater to various minority shareholders' needs

KUALA LUMPUR: Eastern & Oriental Bhd (E&O) seems to have crafted a more attractive deal in its second attempt to restructure the group's property business.

Under its proposal to merge with 63%-owned listed property arm E&O Property Development Bhd (E&O Prop), it is offering options to cater to various minority shareholders' needs.

Datuk Terry Tham Ka Hon (left) and E&O executive director Eric Chan at the briefing

“We do learn from our previous experience, for example, issues like what are the things that minority shareholders want,” said E&O managing director Datuk Terry Tham Ka Hon.

“We failed the previous time maybe because it was a buyout,” he told StarBiz on Tuesday after announcing the proposed merger.

E&O Tuesday proposed a merger with E&O Prop via share swap at the ratio of 1,000 E&O Prop shares for 1,100 E&O shares.

E&O Prop's minority shareholders can also elect to receive a combination of cash and shares for their E&O Prop holding, on the basis of 715 E&O shares and RM875 cash for every 1,000 E&O Prop shares.

The total cash payment, assuming full acceptance via this method, is estimated at RM213.3mil.

Full cash settlement would be offered to E&O Prop minority shareholders from the “excess cash” available after the first two options, and the final amount “will be determined by the board as it may in its absolute discretion think expedient and in the best interest of the company”.

Under Section 176 of the Companies Act, this exercise will go through if 50% of its shareholders, and 75% in value of shareholding of those present during the voting, accept the proposals.

Tham, who holds 11.2% direct and 27.7% indirect stakes in E&O, said he believed it was a fair deal for the minority shareholders, as the three options offered would cater to different individual shareholders' needs.

And the proposed merger would be good for the group's long-term prospects in property development.

In May 2005, E&O made a voluntary general offer (VGO) to buy out all E&O Prop shares and warrants it did not own at 65 sen per share and 10 sen per warrant.

The deal fell through when E&O Prop minority shareholders voted against it at the EGM.

Since then, share prices of both E&O and E&O Prop have climbed substantially. So have their earnings.

Surging from below RM1 in May 2005, E&O hit a high of RM3.18 in May this year before it lost its footing amid the prevailing weak sentiment. The stock finished at RM2.41 yesterday, up one sen.

E&O Prop, formerly Kamunting Bhd, soared to a 10-year high of RM4.20 in June this year. The counter rose 11 sen, or 4.5%, to close at RM2.56 yesterday.

Tham stressed that the proposal “was a merger, not so much a privatisation exercise”.

“This is not a similar deal (compared with the proposed VGO in 2005).

“The (current) proposal gives E&O Prop minority shareholders the opportunity to continue owning shares in a listed entity, which is the parent company E&O,” he said.

An artist’s impression of Marina & Retail at Sri Tanjung Pinang in Penang to be developed by E&O Prop. The company contributes over 90% to parent E&O’s revenue

“Those who think that E&O Prop shares have higher value should swap their shares (for E&O shares) to see the share price appreciate further.

“Whereas the cash offer is for minority shareholders who want an immediate exit,” Tham said.

On the rationale for the proposal, he said the companies were “mirror images” of each other, with E&O reflecting E&O Prop's performance. E&O Prop is the major income earner for E&O, contributing over 90% of its revenue.

The corporate exercise would increase E&O share liquidity and more importantly, align shareholders' interest in a single listed entity, Tham added.

When the first proposal was mooted over two years ago, the Minority Shareholder Watchdog Group (MSWG) urged shareholders not to accept the raw deal. It said then the offer price of 65 sen was unfair to minority shareholders.

MSWG, however, has a different view on the latest proposal.

Chief executive officer Abdul Wahab Jaafar Sidek told StarBiz that the new deal looked positive and more favourable compared with the VGO.

»The deal appears fair for minority shareholders« ABDUL WAHAB JAAFAR SIDEK

“The deal appears fair for minority shareholders, especially in the current rather weak market condition,” he added.

Analysts concurred that the proposal showed better consideration for minority shareholders' interest compared with the previous VGO. They generally opined that the restructuring was a sensible move.

Deutsche Bank said the merger would transform E&O into a direct player in the property development and hospitality business, from merely being an investment holding company now. E&O's share price would also command better valuation.

Credit Suisse, which initiated coverage on E&O Prop two days ago, said in its research note the proposed merger would remove the conflict of interest and related party transactions between the two companies.

It said the cash offer was not attractive as the offer price of RM2.50 per share was only 2% premium to the share price. However, the cash option would provide support to the share price at that level.

By The Star (by

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