MERGERS & ACQUISITIONS:

A Case Study

Phase 1

: The Yahya Empire

(1990-1997)

Phase 2

: The Financial Crisis

(1997-2000)

Phase 3

: The Financial Restructuring

(2000-2004)

Phase 4

: The New DRB-HICOM

(2004-2006)

Phase 5
(2006 - current)

: The New Shareholders

PHASE 1:

The Yahya Empire

(1990-1997)

1990 -1994

Tan Sri Yahya Ahmad

Tan Sri Salleh Sulong

MCM
Master-Carriage Malaysia Sdn Bhd

Othman Jaafar

1990 -1994
MCM

100%

100%

ACM
Isuzu

100%

100%

USF

Directional

Mitsubishi

Citroen

100%

Master-Builders

ASM

100%

Ramgate

1994

ACM

Imatex Bhd

Property
Development

injected

Diversified
Resources Berhad
DRB

M&A: DRB-HICOM

1994 -1996
DRB

Automotive

Property Dev

ACM

Imatex

USPD
Modenas
Deftech
MTB

Services
Intrakota
Puspakom

Gadek

1994 - 1996
ACQUISITION OF GADEK

USF
DRB acquired USF from
MCM and later injected
into Gadek as the
purchase consideration
for 33% shareholdings

Gadek

Perspec

Sea Insurance

Plantation
- Listed on LSEX

Construction

Financial Services

1994 -1996
DRB

Automotive

Property Dev

ACM

Imatex

USPD
Modenas
Deftech
MTB

Services

33%

Intrakota

Gadek

Puspakom

Perspec
Sea Insurance
USF
Gadek Capital

M&A: DRB-HICOM

1994 - 1996
ACQUISITION OF CCM
CCM was acquired from
Standard Chartered
Australia.

Gadek

Gadek Capital was

created as the Holding Co
of CCM.
Later, Gadek Capital
was listed on KLSE.

Gadek Capital

CCM

Holding Co.

Financial Services

1994 -1996
DRB

Automotive
ACM
USPD

Property Dev
Imatex

Services
Intrakota

Gadek

Puspakom

Perspec

Modenas

Sea Insurance

Deftech

USF

HICOM
MTB

Gadek Capital
CCM

33%

55%

1994 -1996
HICOM

Automotive

Property Dev

27%

Proton

Comtrac

Alam Flora

29%

EON

HICOM
Gamuda

Air Asia

H. Teck See

HICOM
Properties

KLAS

H. Engineering
HICOM-denzo

Services

1994 - 1996
ACQUISITION OF HICOM From Khazanah

USF & ACM

HICOM

1.

Part shares & part cash

2.

USF & ACM were injected into HICOM. Both

valued at RM400.0m

3.

Gadek issued RM760m guaranteed bonds to

pay Khazanah .

1994 - 1996
The Success Factors
1.

Tan Sri Yahya Ahmad

Brilliant
Risk taker
Tun Mahathirs corporate man
Annuars close friend

2.

Malaysia Industrialisation era

Automotive sector is one of the catalyst

3.

Strong support by Banks

Banks are knocking at door

March 1997

The tragic death of

Tan Sri Yahya Ahmad

PHASE 2:

The Financial Crisis

(1997-2000)

1996 Yahya Empire

DRB

Automotive

Property Dev

USPD

Imatex

Modenas

MCM

Services
Intrakota

33%
Gadek

Puspakom

Deftech
Perspec

MTB

Sea Insurance
30%

55%
Gadek Capital
CCM

USF

HICOM Prop

KLAS

ACM

HICOM Gamuda

Alam Flora

Comtrac

Air Asia

Proton

27%

EON

29%

HICOM

1996
Average Share Prices
1. DRB

RM5.00

2. Gadek

RM15.00

3. Gadek Cap

RM8.00

4. HICOM

RM8.00

5. Proton

RM10.00

6. EON

RM10.00

PHASE 3:

Financial Restructuring

DRB-HICOM Group
DRB

Automotive

Property Dev

MCM

Services

USPD

Double Track

Intrakota

Modenas

Imatex

Puspakom

Perspec

Sea Insurance

33%
Gadek

Deftech
MTB

30%

55%
Gadek Capital
CCM

USF

HICOM Prop

KLAS

ACM

HICOM Gamuda

Alam Flora

Comtrac

Air Asia

Proton

27%

EON

29%

HICOM

1997 - 2000
What were the problems?

M&A: DRB-HICOM

1.

Very high debts

- Gearing reached 2.5 times at each level

2.
3.

Interest rate shot up to 22% (from 8%)

Cash trapped; dividend insufficient

4.
5.

Security value underwater share price dropped

Banks recall the facilities

6.
7.

Cross default
Long term investments were funded by short term
loans (Mismatched)

1997 - 2000
The Borrowings (principal amount)
Companies
1.

DRB

RMm

Type

400.0 RC / TL
200.0 TL

Purpose
To finance Intrakota and its
related companies/business
To finance the setting up USPD

2.

Intrakota

450.0 HP

To finance the buses

3.

Gadek

760.0
260.0

To finance acquisition of HICOM

To finance acquisition of SEA Ins

4.

Gadek Capital

200.0 RC

To finance acquisition of CCM

5.

HICOM

950.0
200.0

To finance acquisition of Proton

Working capital

6.

Others*

3,000.0 RC/TL

Total

6,420.0

* At subsidiaries

Bonds
RC
Bonds
RC/OD

Working capital

PHASE 3:

Financial Restructuring
Merger
Debt restructuring

The Merger

2000
The Merger
1.

Consolidation of MCM and the 4 listed companies:

DRB
Gadek
Gadek Capital
HICOM

2.

Rationalisation and streamlining of businesses

Disposals of assets

The Merger
Acquire via issuance
of shares
MCM

DRB
Offer to exchange
shares 70%
33%

Offer to exchange
shares 67%
Offer to exchange
shares 45%

Gadek

30%
HICOM

55%
Gadek Cap

Merger The Main Proposals

1.

Proposed Gadek Offers

Voluntary conditional offer for the remaining securities in Gadek not already
owned by DRB.

2.

Proposed HICOM Offers

Voluntary conditional offer for the remaining securities in HICOM not already
owned by DRB.

3.

Proposed Gadek Capital Offers

Voluntary conditional offer for the remaining securities in Gadek Capital not
already owned by DRB.

4.

Proposed Acquisition of MCM

Acquisition of 100% equity interest in MCM via issuance of shares by DRB.

Take-over Method to acquire the shares

The Merger
The exchange ratios
Companies

Ratio for Shares

1.

Gadek

1.0 : 1.0

2.

Gadek Capital

0.5 : 1.0

3.

HICOM

0.7 : 1.0

Based on DRB share price of RM4.57 against 5-day weighted

average share prices of the companies:

Companies

RM

1.

Gadek

4.52

2.

Gadek Capital

2.32

3.

HICOM

3.25

Basically Transform
From

DRB-HICOM Group
DRB

Automotive

Property Dev

MCM

Services

USPD

Double Track

Intrakota

Modenas

Imatex

Puspakom

Perspec

Sea Insurance

33%
Gadek

Deftech
MTB

30%

55%
Gadek Capital
CCM

USF

HICOM Prop

KLAS

ACM

HICOM Gamuda

Alam Flora

Comtrac

Air Asia

Proton

27%

EON

32%

HICOM

TO

The Merger
DRB-HICOM

Automotive

Property Dev

Modenas

Double Track

Intrakota

Deftech

Imatex

Puspakom

MTB

Perspec

Sea Insurance

USF

HICOM Prop

KLAS

ACM

HICOM Gamuda

Alam Flora

Hicom Suzuki

Comtrac

Air Asia

Hicom Yamaha

Horsedale Dev

Scott & English

OSI

Proton City

HICOM IT

EON

Rebak Marina
Kenyir Splendur

Services

Merger Concurrent Proposals

1.
2.

Gadek Warrants Exchange Scheme

HICOM Warrants Exchange Scheme

3.
4.

DRB Warrants Rights Issue

DRB ESOS

5.
6.

Cancellation of HICOM ESOS

M&A amendments

7.
8.

Increase in authorised share capital

Change of name

9.

Disposal of Proton & USPD (Strategic Exit)

Rationale of The Merger

1.
2.

Reduce complexity of the Group structure.

Streamline assets portfolio of each listed companies.

3.

Generate opportunity to create a balance portfolio in 3

business segments.

4.

Transformation of assets to take advantage of new

economy.

5.

Consolidate various treasuries to realise more resilient

financial structure of the DRB-HICOM Group.

Benefits of the Merger:

1.

Synergistic benefits

2.

Resilient against economic uncertainty

3.

Enhance to value: restructuring assets & liabilities (right

balance

4.

Transparency: transparent organization structure

Rationalisation of Businesses
Disposal of Assets to reduce debt
1.

Proton was sold to Petronas (part of Merger exercise).

Proceeds: RM1.0b @ RM7/share redeem HICOM bonds and
repay other debts

2.

USPD was sold to Proton (part of Merger exercise).

Proceeds: RM275.0m @ RM27/share repay
debts at DRB

3.

CCM was sold to Hong Leong Bank.

Proceeds: RM470m repay debts at Gadek Capital.

4.

Various companies in HICOM: Kedah Cement, etc

Proceeds: RM600m repay debts at HICOM

Financials: As Is vs The Merger

----------AS IS----------

-----THE MERGER---

RMm

2001

2001

Turnover

4,319.6 2,524.6

2002

2003
2,560.8

2002

2003

9,595.8 6,587.9

8,145.9

Operating Profit

121.8

75.6

130.7

332.1

422.4

553.9

EI

133.0

18.2

PBT

254.8

75.6

130.7

350.3

422.4

553.9

Taxation

(68.0)

(36.2)

(43.5)

(152.7) (165.6)

(185.0)

PAT

186.8

39.4

87.2

197.5

256.8

368.9

MI

(19.4)

(12.7)

(27.8)

(47.1)

(71.7)

(99.9)

PATMI

167.4

26.7

59.4

150.4

185.1

269.0

No. of shares (m)

263.0

263.0

263.0

928.7

928.7

928.7

0.64

0.10

0.22

0.16

0.20

0.29

EPS (sen)

The Merger - Process

Proposal
or
Scheme

Financial analysis / Valuation various options

Financial impact - Shareholders
Business strategies / direction

Merchant Bankers, solicitors, accountants (auditors)

Financial
Advisors

All angle legal, accounting treatment etc;

enhanced / improved proposal or scheme
Timelines / deadlines
Submission to authorities SC, FIC, KLSE, BNM

Management
and
Board Approvals

Management approval
Board meeting - All advisors are invited
Letters to Board of Directors HICOM, Gadek &
Gadek Capital

The Merger Process (contd)

To KLSE

Announcement

Circular
To
Shareholders

Road
Show

Press release

At all respective companies HICOM, Gadek and

Gadek Capital
Due diligence on circular
Content includes financial impact, shareholdings etc

Other major shareholders

Fund Managers
Media

Announcement to KLSE
1.
2.

Only for listed companies.

Assisted by Merchant Bankers / Solicitors

3.

BursaMalaysia guidelines
Chapter 10 - Transactions
Percentage Ratios

4.

5% and more

: Announcement to Bursa Malaysia

15% and more

: Circular to shareholders

25% and more

: Shareholders approval

When to announce?
Chapter 9 Continuing Disclosure: Part C

5.

Suspense of the counter?

Practice Note No. 2/2001

6.

Leaking of information before announcement?

Chapter 9 Part E

Due Diligence Exercise

1.

Under Sec 212 of CMSA (Capital Market & Securities

Act). Previously Sec 32B of SC Act.

2.

Sec 214 of CMSA Fine up to RM3.0m or imprisonment

of not more than 3 years or both

3.

Formation of DDWG
Director of Co. (chairman)
Employees HODs / HOS
Solicitors
Advisors Merchant Bankers, Reporting Accountants

4.
5.

Due Diligence Planning Memorandum

DDWG will make recommendations to the Board for
circular to be approved.

6.

The Board is responsible on information in the circular

Due Diligence Exercise

All information in circular must be verified /
confirmed
1.

Solicitors:
ROC on corporate information
Contracts / agreements / licenses etc
Confirmation from other solicitors

2.

Reporting Accountants:
Financial projections, assumptions

3.

Management:
Confirmation on statements made
Confirmation from subsidiaries

4.

Establishment on cut-off-date, materiality threshold

The Merger Process (contd)

Shareholders at EGM

Approvals

Authorities SC, KLSE, FIC & BNM

Announcement to KLSE

Acceptance /
Completion

Internal
Improvement

Announcement to KLSE on level of acceptances

Completion in November 2000

Reshuffling of employees No VSS or retrenchment

Improvement of staff benefits (to ex DRB)
Re-branding new corporate logo, Vision & Mission

The Merger
The Success Factors (completed as scheduled)
1.

Management control
All 4 listed companies are controlled by same management

2.

Same shareholders
Institutional shareholders / Government related companies
EPF, PNB, Khazanah, Pension Funds

3.

Similar Businesses
HICOM subsidiaries = DRB subsidiaries

4.

Minority shareholders do not wish to hold unlisted shares.

Gadek, Gadek Capital & HICOM will be delisted from KLSE.

5.

Perfect Timing.
Recession, share prices dropped

Debt Restructuring

Debt Outstanding After Merger

Companies
1.

DRB

RMm

Type

Status

400.0 RC / OD Outstanding
200.0 TL

Paid

2.

Intrakota

450.0 HP

Outstanding

3.

Gadek

760.0
260.0

Outstanding
Outstanding

4.

Gadek Capital

200.0 RC

Paid

5.

HICOM

950.0
200.0

Paid
Paid

6.

Others*

3,000.0 RC/TL

Total

6,420.0
3,100.0

* At subsidiaries

Bonds
RC
Bonds
RC/OD

Partially paid.

Gadek Debts
Debt

Principal Interest
RMm
RMm

Type

Security

1. Gadek Bonds
(guaranteed)

740.0

30.0 Fully
secured

30% of HICOM shares

held by Gadek

2. Syndication
Term loan

230.0

70.0 Partially
secured

Sea Insurance shares &

certain land banks

12.0 Unsecured

3. RC / OD
Total

30.0
1,000.0

Total Lenders = 18
Interest rates: 9% - 12%

112.0

Gadek Debts
List of Lenders
1.
2.

CIMB
BCB

10.
11.

HSBC
Sabah Dev Bank

3.
4.

Public Bank
OCBC

12.
13.

Utama Merchant
Affin Bank

5.
6.

Maybank Int. (L)

The Sanwa Bank

14.
15.

Danaharta Managers
Bank Rakyat

7.

Bayerische
Landesbank (L)

16.

Maybank

8.
9.

RHB
Bank Utama

17.
18.

Alliance Bank
Pengurusan
Danaharta

DRB-HICOM Group
DRB-HICOM
100%
Gadek

70%

30%
HICOM

Gadek Cap
32%

EON

55%

45%

Gadek Debt Restructuring

Options?
1.

Further disposal of other assets in the Group?

2.

Refinancing?
Issue another bonds?
Secure another syndication loan?

3.

Section 176 Scheme of Arrangement?

4.

Capital call from DRB-HICOM shareholders?

Gadek Debt Restructuring

Factors to consider
1.

Financial Projections
Interest payment
Principal payment

2.

Business directions (affect payment of principal)

3.

Security arrangement
Assets for future development

4.

Put your self in Lenders shoes

Understand lenders behavior / demand

Gadek Debt Restructuring

The Scheme
RM1.1b
Cash payment
RM240m
Proceeds from sale of
Gadek Capital to
Malton - RM210m.
Internal funds
RM30m

Balance RM872m
Converted:
RSLS A, B & C
RESLS A, B & C
REULS
Exchange price = RM1.88
YTM = 7%

Interest waiver (from 15 Dec 2001 to Conversion Date)

Security arrangement

Gadek Debt Restructuring

RMm
Total

Fully
Secured

Partially
Secured

Unsecured

Total

770

300

42

1,112.

(116)

(123)

(1)

(240)

- RSLS A

457

457

- RSLS B

10

10

- RSLS C

18

18

457

28

485

- RESLS A

196

196

- RESLS B

- RESLS C

196

12

208

136

42

178

653

176

43

872

Cash Payment
Conversion:

- REULS
Total Conversion

Gadek Debt Restructuring

A
1. RSLS

Charge over
HICOM shares
(30%) 330m
shares.
Deed of
assignment of
EON shares
(30%)

B
Lien holders
caveat of
Gadek lands.
Deed of
assignment.

C
Deposit of
21.5m shares of
Sea Insurance.
Deed of
assignment.

Put Option by DRB-HICOM on 3rd anniversary

2. RESLS

3. REULS

2nd legal charge

Lien holders
of HICOM shares caveat of
Gadek lands.
Deed of
assignment
Deed of
assignment.
-

Deposit of
21.5m shares of
Sea Insurance.
Deed of
assignment.
-

Gadek Debt Restructuring - Process

Proposal
or
Scheme

Financial
Advisors

Cash flow projections

Repayment of interest and principal
Financial impact - Shareholders

Appointment of financial advisors & solicitors

enhanced / improved proposal or scheme
Lend credibility
Drafting Debt Restructuring Agreement

Negotiations
With lenders

Under purview of CDRC

Creditors meetings
Revised scheme

Gadek Debt Restructuring Process (contd)

Management/
Board

Management not agreeable back to lenders /

CDRC

Appointment of Merchant Bank

Merchant Bank

DRA

Announcement

Submission to SC, KLSE, FIC & BNM

Terms & Conditions

Only when Lenders signed Debt Restructuring

Agreement

Gadek Debt Restructuring Process (contd)

Shareholders

Authorities
Approvals

Legal documents

Approval in the EGM

SC, KLSE, FIC & BNM

Signed various legal documents with the lenders

Payment to the lenders

Payment

Conversion of debt into loan stocks

Intrakota Debt Restructuring

The Scheme Sec 176
RM800m
Intrakota
RM450m

ETB*
RM350m
Liquidation basis
Sold all assets to SPNB**

Creditors
Meetings

Distribute proceeds to all

Lenders & Creditors
Balance termed out

Rapid KL

*subsidiary of Directional
** wholly owned by MOF

PHASE 4:

The New DRB-HICOM

(2004-2006)

Financials: Actual vs The Merger

---------ACTUAL----------
RMm

2001

Turnover

4,968.6 4,329.2

PBT

2002

2003
4,898.0

-----THE MERGER---
2001

2002

9,595.8 6,587.9

8,145.9

411.5

391.1

457.8

(175.8)

(163.4)

(194.3)

PAT

235.7

227.7

263.5

197.5

256.8

368.9

MI

(79.6)

(51.6)

(57.2)

(47.1)

(71.7)

(99.9)

PATMI

156.1

176.1

206.3

150.4

185.1

269.0

No. of shares (m)

914.7

926.8

982.3

928.7

928.7

928.7

21

19

21

16

20

29

Taxation

EPS (sen)

350.3

2003

422.4

553.9

(152.7) (165.6)

(185.0)

Business Development
2000 - 2006

1. Ipoh Rawang Double Tracking projects RM2.5b

2. JV between DRB-HICOM, Oriental Hldgs & Honda Japan
sole distributor and manufacturer of Honda cars
3. HICOMOBIL Sole distributor of Chevy cars
4. HICOM Suzuki Sole distributor of Suzuki cars
5. Assembly of Mercedes Benz at MTB plant.

Corporate Exercises
1.

Rationalisation of Insurance Business Uni.Asia:

JV between Sea Insurance & UOB
Acquisition of EON-CMG Life Insurance by Uni.Asia
Cross selling

2.

Capital distribution by EON:

Dividend in specie of Cycle Carriage Ltd shares
ECB shares
HICOM swap CCL shares with ECB shares owned by Jardine

3.

Acquisition of Directional Group (Directional & ETB)

4.

Refinancing of Gadek loans DRB-HICOM issue bonds

amounting to RM1.0b

5.

Disposal of 15% shareholdings of the Estate of the late Tan Sri

Yahya to Tan Sri Syed Mokhtar for RM560m or RM3.65/share

Share Performance: 1998 - 2006

3
2

Why share price underperformed?

M&A: DRB-HICOM

1. Diversified not focused.

2. Holding company discount. EON is preferred.
3. Automotive fragmented industry, National Automotive
Policy not successful.
4. Management not aggressive? Slow decision?
5. Relationship with Government:
Intrakota returned to the Government
Double tracking project failed
Proton returned to the Government

PHASE 5:

The New Shareholders

(2006-present)

Current Development
1. Acquisition of Rangkai Positif Sdn Bhd
Issuance of DRB-HICOM shares: 376.9m @ RM1.95/share

2. Privatisation of EON
Acquisition of the remaining shares: Cash RM370m @ RM2.10 /share

3. Disposal of ECB shares

Cash RM1.3b @ RM9.55/share pay debts, funding for EON
privatisation & working capital

4. Acquisition of Bank Muamalat

Issuance of DRB-HICOM shares: 548.6m @ RM1.91/share

Tan Sri Syed Mokhtar shareholdings will be increased

from 15% to 54%.

Share Performance: 2006 - Present

Thank You