Public Reprimand Against Sime Darby and Perfect Pleasure

Kuala Lumpur, 17 July 1998

The Securities Commission (SC) today reprimands Sime Darby Berhad (Sime Darby) and its Board of Directors responsible for the take-over of Sime Bank Berhad (Sime Bank), and in a separate case, Perfect Pleasure Sdn Bhd (PPSB) and its concert parties, for not undertaking mandatory general offers (MGO) on remaining voting rights in Sime Bank and Perfect Food Industries Bhd (PFIB), respectively, as required by Rule 34.1(a) of the Malaysian Code on Take-Overs and Mergers, 1987 (the Code).

In the case of PPSB, the SC had also decided that PPSB and its concert parties be deprived of the enjoyment of the facilities of the KLSE for a period of one year with immediate effect. The SC views seriously the non-compliance of the Code by PPSB and its concert parties. No attempts were made by PPSB and its concert parties to discharge their obligations after the SC discovered and informed them of their breach of Rule 34.1(a) of the Code. This reflects the irresponsible attitude on their part to observe the Code.

In the case of Sime Darby and its Board of Directors responsible for the take-over of Sime Bank, the SC had decided to issue them a public reprimand for their indifferent attitude in handling the take-over transaction of Sime Bank resulting in the breach of Rule 34.1 (a) of the Code after taking into consideration their subsequent attempts to fulfill their obligation, which unfortunately could not be discharged as a consequence of the drastic change in the financial position of Sime Bank which resulted in their having to divest their entire shareholdings in Sime Bank.

High standards expected of directors and principal officers
Directors and principal officers of companies are expected to maintain a high standard of corporate conduct and to observe all relevant laws, regulations and rules at all times. Directors of companies must ensure that their fiduciary duties are discharged in a fair and responsible manner, with due care and diligence at all times. This is important to uphold market integrity and to ensure continued investor confidence in the capital market.

Fair treatment to minority shareholders
In the event of any take-over situation, the SC places utmost importance on the need to observe good standards of commercial practice and fair treatment to minority shareholders to promote investor confidence and good corporate conduct in the market. In addition, the spirit of the Code should be upheld at all times.

Rule 34.1(a) of the Code requires any person who acquires, whether by a series of transaction over a period of time or not, shares which (taken together with shares already held or acquired by persons acting in concert with him) carry more than 33% of the voting rights of a company, to undertake a mandatory general offer for the remaining voting rights in the company.

The SC is also empowered under Section 33(10) of the Securities Commission Act 1993, to invoke such sanctions as public reprimand and temporary or permanent deprivation of enjoyment of the facilities of a stock exchange as it deems fit.

Chronology of events in Sime Darby's case
On 11 November 1995, Sime Darby entered into a conditional agreement with Datuk Keramat Holdings Berhad (DKH) and UMBC Holdings Sdn Bhd, a wholly-owned subsidiary of DKH, to acquire 201,168,890 Sime Bank shares, representing 60.35% equity interest in Sime Bank, for a cash consideration of RM1,300,000,000 or approximately RM6.46 per share. Following this acquisition, Sime Darby was obliged to extend a MGO on the remaining 132,164,322 shares in Sime Bank under Rule 34.1(a) of the Code.

The SC had on 16 February 1996 given its confirmation to Sime Darby that they had to undertake the MGO for the remaining shares in Sime Bank. The acquisition of Sime Bank by Sime Darby Group was completed on 22 April 1996, whereby the acquisition was made through, Sime Darby's wholly-owned subsidiary, Sime Darby Financial Services Holdings Sdn Bhd (SDFS). Sime Darby did not carry out the MGO due to the limitation on its interest in Sime Bank permitted by Bank Negara Malaysia (BNM) then.

Subsequently, on 12 March 1997, Sime Bank completed a rights issue of 166,666,606 Sime Bank shares at an issue price of RM6.50 per share on the basis of one new Sime Bank share for every two existing Sime Bank shares.

The SC had reminded Amanah Merchant Bank Berhad (Amanah), Sime Darby's adviser, of Sime Darby's outstanding obligation and the need to resolve the matter as soon as possible. Subsequently, Amanah, on behalf of SDFS, informed SC that SDFS had on 17 October 1997 obtained BNM approval and proposed to extend an unconditional mandatory general offer for the remaining shares in Sime Bank not already owned by SDFS. Between October 1997 and January 1998, several applications were made by Amanah, on behalf of Sime Darby, for revisions in the terms and conditions of the MGO.

Change in ownership
Towards the end of February 1998, Sime Darby indicated that it might not be possible for them to pursue the MGO as a change of ownership in Sime Bank was imminent. On 10 March 1998, Rashid Hussain Berhad (RHB), Sime Darby and KUB Malaysia Berhad (KUB) released a joint statement in respect of the signing of a conditional sale and purchase agreement for the acquisition by RHB Group of Sime Bank for the purpose of a merger with RHB Bank Berhad (RHB Bank). Sime Darby through its wholly owned subsidiary, SDFS, decided to dispose of its entire 60.35% equity interest comprising 301,753,335 shares of RM1.00 in Sime Bank while KUB would dispose of 150,043,120 shares representing 30.03% equity interest in Sime Bank to RHB Bank Berhad (RHB Bank) for a total purchase consideration of RM770 million or approximately RM1.70 per share.

With the new development involving the changes in ownership in Sime Bank, the SC had, on 31 March 1998, written to Amanah to inform them of Sime Darby's outstanding obligation on the MGO and required them to revert on their plan to address the obligation. On 13 April 1998, Amanah replied and informed the SC that BNM via its letter dated 9 April 1998 had withdrawn its earlier approval given via a letter dated 17 October 1997 for SDFS to undertake a MGO and that Sime Darby was in no position to undertake the general offer.

SC issues show cause letter
The SC views seriously the failure of Sime Darby to carry out the MGO and had on the 12 May 1998 issued a show-cause letter to the Board of Directors of Sime Darby seeking explanations on why appropriate action should not be taken against them for failure to undertake a general offer for the remaining voting rights in Sime Bank. Sime Darby explained that the market downturn and the financial problems at Sime Bank and Sime Securities Sdn Bhd had prevented them from discharging their MGO obligation.

Chronology of events in Perfect Pleasure's case
In respect of PPSB, SC had discovered that PPSB had purchased 114,000 PFIB shares from the open market between 8 and 19 August 1997. The concert parties of PPSB at the time were its directors (Sai Chin Hock, Sai Ah Sai and Su Lee Soon, nee Yeo) and its shareholder (Sai Swee Siong). PPSB and its concert parties had reduced their stake in PFIB from 39.1% to 32.6% after selling 1,297,000 PFIB shares in the open market between the period from 13 June 1997 to 23 June 1997. At this level, PPSB and its concert parties would have to observe the requirement of Rule 34.1(a) of the Code, which is applicable to them. With the purchase of 114,000 PFIB shares from the open market, PPSB and its concert parties had increased their collective shareholdings in PFIB from 32.6% to 33.2% and, therefore, had breached Rule 34.1(a) of the Code. Their interest in PFIB was further increased to 40.2% as of 27 January 1998 after subsequent purchases by PPSB and its concert parties of PFIB shares in the open market. By acquiring additional stake in PFIB, PPSB and the concert parties had triggered the mandatory general offer obligation and were required to undertake a MGO for the remaining voting rights in PFIB.

Perfect Pleasure did not address issue sufficiently
PPSB and its concert parties were given due opportunity to explain their failure to comply with Rule 34.1(a) of the Code. PPSB and its concert parties had informed SC that they were in no financial position to undertake a MGO. The SC views this with great concern and had, on 21 May 1998, issued a show-cause letter to PPSB and its concert parties seeking explanation on why action should not be taken against them for failing to undertake a MGO for the remaining voting rights in PFIB. PPSB, however, did not address sufficiently the issue on the non compliance of Rule 34.1(a).


Issued on behalf of the Securities Commission. For assistance, please contact the Corporate Affairs Department at tel. 250 7513 (Ann Teoh) or 250 7550 (Nafizah Omar), or fax. 253 6184
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