Synergy Drive Merger: Winners and Likely Losers

A Kadir Jasin

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MANY debaters have asked me to comment on the completion of the merger of three Permodalan Nasional Berhad’s plantation-based companies – Sime Darby Berhad, Golden Hope Berhad and Kumpulan Guthrie Berhad .

I had commented on the subject many times before in this blog as well as in my Other Thots column in the Malaysian Business magazine.

With your indulgence, I would like to post my latest comment on the subject, which appeared in the Oct. 16 issue of the Malaysian Business.

I wrote:

“THE rejuvenation of Tun Musa Hitam, one of the two surviving Deputy Prime Ministers of the Tun Dr Mahathir Mohamad era, continues and appears to be unstoppable.

He is seen not only as a close buddy of the Prime Minister but also enjoys his confidence.

He was not only bestowed with the nation's highest honorific title –Tun - but has also been entrusted with many important governmental responsibilities, one of which is as unofficial adviser to the Prime Minister.

This is only to be expected. Abdullah and Musa ware in the same faction of the luckless `Team B' that unsuccessfully tried to topple Dr Mahathir as Umno President and Prime Minister in 1987. The other faction was led by the former Finance Minister Tengku Razaleigh Hamzah.

Musa is a shrewd politician and is considered by many politicalcommentators as a master of intrigue and one who sees himself as the ultimate Malay liberal.

His position as an elder in the Prime Minister's inner circle became even more important following the challenge to Abdullah by Dr Mahathir and Tengku Razaleigh. Abdullah counts on Musa toprovide him with a political shield (against Dr Mahathir).

This has led to Musa famously describing Abdullah's refusal to answer Dr Mahathir's charges as an `elegant silence'. Those who know Musa are not surprised by such tokenism.

For his support and loyalty, he has been amply rewarded with honour and respect - the latest being his appointment as the chairman of Synergy Drive Sdn Bhd.

If we are to believe the media and market hype, Synergy Drive is the company and the way of the future.

It was born out of the mega merger of three Permodalan Nasional Bhd (PNB) plantation companies, namely, Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd.

PNB's chairman, Tan Sri Ahmad Sarji Abdul Hamid, was named deputy chairman. The national investment company remains the controlling shareholder of the plantation behemoth.

To my mind, Musa's primary task is to ensure that the success of putting together the historic merger is followed by an equally successful amalgamation and consolidation at the operational level with minimum dislocation of resources, in particular, the group's rich human capital - to borrow the Prime Minister's buzzword.

The fear that the merger could lead to widespread retrenchment is not unfounded. Many government-linked companies have, in recent years, resorted to retrenchment to save cost and show rising profits.

Apart from amassing and investing Bumiputera capital, PNB has been a fertile ground for the employment and training of Bumiputera managers.

Its plantation companies, which employ 107,000-odd employees, have trained and employed some of the best and most capable Bumiputera managers, planters and researchers.

Musa cannot count himself as being successful if this human capital (modal insan to borrow the Prime Minister's jargon) is sacrificed in the name of profitability and market capitalisation.

In many ways, Musa is equipped to do the job. He has a long association with commodities, being the country's first Primary Industries Minister back in the 1970s.

If there is anything that we can describe as Musa's legacy, it has to be his handling of the 1970s' rubber crisis. Musa was tasked with finding solutions to the crisis, which, among other things, led to the 1974 Baling protest.

It can be recalled that Anwar was among the ringleaders. He was arrested and later detained under the Internal Security Act for 22 months.

Musa was instrumental in recommending a system of price support for the commodity and later a national stockpile to mop up excess rubber produced by the smallholders.

Apart from Ahmad Sarji, Musa will be assisted by a strong multinational board comprising Indonesian banker Dr Arifin Siregar, prominent planter Datuk Henry Sackville Barlow, Islamic banking expert Datuk Dr Halim Ismail, Datin Paduka Zaitoon Datuk Othman of the Muslim Lawyers Association of Malaysia and Datuk Seri Andrew Sheng, a former chairman ofthe Hong Kong Securities and Futures Commission.

How he helps guide Synergy Drive, which will soon assume the name Sime Darby Bhd, will determine whether he still has what it takes to be a leader, or whether he has lost his leadership ability over the years.”

Footnotes: My additional thoughts and observations on the subject:

1. Was it really a merger or was it a reversed takeover of Golden Hope and Kumpulan Guthrie by Sime Darby? We were told that this was a merger of equals. It’s now obvious that it was called a merger “to enable PNB to vote at the EGM. If it was called a takeover, it would be deemed to be a related party transaction and PNB would have to abstain from voting;

2. A takeover was evident when the new merged entity is called Sime Darby (SD) Berhad. Synergy Drive (SD) was it’s temporary name during the “takeover” exercise;

3. Did the promise to create the world’s largest listed oil palm plantation company really happen? Can the “new” Sime Darby be called a plantation company when only 47 per cent of revenue is contributed by plantation activities?;

4. Have the stakeholders, in particular the PNB, been “taken for a ride” with the promise to establish the world’s largest listed oil palm plantation but ended up still with a diversified company?;

5. Will another clever and well-connected “orang tengah” (middleman) copy the hugely profitable CIMB’s money making scheme to propose another round of reorganization of Sime Darby so that more commissions and quick capital gains could be made?;

6. Who would be the lucky buyers of Sime Darby’s non-plantation assets should a further break-up of this PNB-controlled company be mandated by the power-that-be?;

7. The initial market reaction to the takeover has been positive. When listed on Nov. 30, Sime Darby shares rose 23.6 per cent or RM2.10 to RM11. But will the long-term assessment change now that the promise to create a truly gigantic plantation company has not materialized?;

8. Will other PNB assets be acquired by other “orang tengah” -- middlemen-- to force another mega merger or takeover on the pretext of business rationalization and economies of scale when the real reason is fee income and quick capital gains?;

9. It is incumbent upon the PNB, in particular its chairman Tan Sri Ahmad Sarji, to guarantee that PNB and its millions of unit trust investors are not taken for a ride;

10. For its shrewd “orang tengah” role, Synergy Drive (CIMB) is believed to have turned its modest invest in the venture (or adventure) into fee income and shares worth hundreds of millions of Ringgit. Not bad for a year’s work;

11. Who is the mystery “non-Bumiputera” market maker who is said to have been responsible for successfully selling this merger idea to the Umno-led government?;

12. Will more Bumiputera assets held in custody by PNB and other Bumiputera trust agencies be “surreptitiously tranferred” to government-linked companies (GLCs)?;

13. In recent years, Bumiputera objectives of trust agencies and companies have given way to profits and market capitalization at most GLCs;

14. What will happen to the staff on the enlarged Sime Darby in the long run? When the sale of business agreement was signed, everyone was promised at least one year of guaranteed employment. When job offers were made, they were offered one year to three years “contracts”; and
What about morale? There have been allegations that those putting together the takeover “have no respect for seniority ” and that the staff of the “dead” Holden Hope and Kumpulan Guthrie alienated.