Case Study Summary for the Mega Merger of Sime Darby Bhd

Case Study Summary for The Mega Merger of Sime Darby Bhd

Case Study Summary for The Mega Merger of Sime Darby Bhd, Golden Hope Bhd and Guthrie Bhd

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Background In March 2007, the Vice President of Sime Darby Bhd evaluated a proposal for mega merger of Sime Darby, Golden Hope Bhd and Guthrie Bhd. All the three listed companies are in the plantation sector controlled by Permodalan National Berhad. Special Purpose Vehicle (SPV) for this merger is Synergy Drive Sdn Bhd. This SPV is set up to facilitate the merger of the Golden Hope Bhd, Guthrie Bhd and Sime Darby Bhd. With the completion of the merger the three companies the group will comprise of the businesses, namely plantations, property, motor, heavy equipment and energy and utilities. Case Summary The merger it will give the group the competitive strengths as follows: To grow further the upstream and downstream sectors To optimise on cost and revenue synergies To value-add further to the palm-oil business To focus on enhancing technology for the industry (research and development)

The challenges that will be faced by Synergy Drive as a result of the merger were as follows: o Challenges to meet the corporate and business strategy:  Achievement to meet the KPI financial indicators e.g ROA, ROE  Improvement in corporate ratings  Growth o Challenges to meet national agenda o Challenges to meet globalisation and borderless world

Analysis of Merger The analysis of the merger was performed using the Market Multiple Analysis that is by multiplying its earnings per share by the price/earnings (P/E) ratio which is called a multiple. From the pre merger analysis shown in Exhibit 1 below, the valuation by CIMB and offer by Synergy Drive Sdn Bhd was considered to be valid and fair. The market price per share (in bracket) are those offered by the respective participating company which were quite reasonable from the price analysed and valued using the Market Multiple Analysis.

Conclusions A further analysis was performed to find out if the merger was successful. This was analysed by using the Financial Analysis method as shown in Exhibit 2. A pre and post merger analysis was conducted using the Financial Analysis method by finding out the Liquidity, Profitability and Debt Management ratios. The pre merger 2006 financial statements was compared with the pro forma post merger 2007 financial statement. Then the pro forma post merger 2007 financial statement was compared with the actual post merger financial statement of Sime Darby for 2008 to assess for the success of the merger. The success of the post merger was again further assessed by using the Market Multiple Analysis as per shown in Exhibit 3. From the tables show in both Exhibit 2 and 3 it can be concluded that the mega merger of Sime Darby Bhd, Golden Hope Bhd and Guthrie Bhd was a successful merger. Exhibit 1 - The Pre Merger Analysis PRE MERGER

Sime Darby

Golden Hope

Guthrie

Earnings After Tax (EAT)

RM1,203.1 Million

RM269.08 Million

RM605.46 Million

No of Shares

RM2431.40 Million

RM1,432.49 Million

RM1,006.59 Million

EPS (Basic)

0.461

0.422

0.281

P/E Ratio (Times)

12.58

9.86

13.88

Market Price Per Share (MPS)

RM5.8 (RM6.46)

RM4.16 (RM5.46)

RM3.9 (RM4.27)

Total Market Value (N*MPS) OR (EAT*P/E RATIO)

RM15,134.99 million

RM2,653.11 million

RM8,403.82 million

Exhibit 2 - Comparison between Pre Merger and Post Merger Financial Ratios for Sime Darby Bhd Golden Hope Bhd and Guthrie Bhd. Pre Merger Sime Darby

Pre Merger Golden Hope

Pre Merger Guthrie

Post Merger (Pro Forma)

1.99x

1.32x

2.23x

1.97x

3.86x

ROA ROE PM: NI/Sales BEP: EBIT/TA

6.39% 12.73% 5.55% 9.36%

3.92% 5.23% 6.79% 6.13%

4.96% 13.87% 18.02% 6.92%

7.68% 12.96% 9.59% 10.13%

10.43% 17.32% 11.02% 14.59%

Debt Management: Debt Ratio: TL/TA

44.15%

22.09%

46.3%

39.11%

38.27%

Liquidity: CR: CA/CL

Actual (after merger) 2008

Profitability:

Exhibit 3 – Post Merger Market Multiple Analysis POST MERGER

FORECASTED POSITION

ACTUAL POSITION AFTER MERGER (2008)

Earnings After Tax (EAT) (Combined Firm)

RM2,706.8 Mil

RM3,512.1 Mil

No. of Shares

6,086 Mil

5,889.7 Mil

Earning Per Share

2706.8/6,086=RM0.43

3512.1/5889.7=RM0.60

Price/Earning Ratio (P/E Ratio) (Assumption: Average)

12.58+9.86+13.88/3 = 12.11x

9.05/59.51=15.17x

Market Price Per

RM 5.33

RM 9.05

Share (MPS) Total Market Value

RM 32,779.35

RM 53,278.56