Heavenly deal between Primus and Eon Capital?

Published on The Edge Weekly edition. 18 Feb 2008: Big Money: What's Primus up to at EON Capital?

• 18 Feb 2008: Big Money: What's Primus up to at EON Capital?
  By P Gunasegaram
  
  What is it in EON Capital that makes Primus Pacific Partners pay a hefty RM9.55 a share, a near 60% premium on its trading price, to gain a non-controlling one-fifth of the bank and financial services holding company for a hefty RM1.34 billion?
  
  And importantly too, why is it that other shareholders, apart from DRB-Hicom, which sold that stake to Primus, don't get to participate in that largesse? Is it right that a strategic shareholder, if Primus is one, pay a premium price to one particular shareholder, who happens to be a key shareholder for all intents and purposes, and is not required to make an offer to other shareholders on the same terms?
  
  However, such premium prices for small stakes are not unheard-of in Malaysia. Ironically, control of DRB-Hicom itself, the vendor in this instance, passed to tycoon Tan Sri Syed Mokhtar Al-Bukhary who only had to gain control of a mere 15.8% stake to be vested with management control.
  
  But he paid a hefty RM3.60 a share, a 64% premium on market prices then, in a deal worth RM560 million, announced in 2004 and completed after some complications in 2005 with government support. The stake came from the estate of the late founder of the DRB-Hicom group, Tan Sri Yahya Ahmad, who died in a helicopter crash in the late 1990s.
  
  Syed Mokhtar has since consolidated his hold on the DRB-Hicom group by injecting his own assets in return for shares.
  
  Primus however denies, almost vehemently, that it has management control but is making very forward-looking remarks about how value can be created, how it should be done, and mentioning that it will seek to help the EON Cap board in these respects.
  
  Yes, on paper at least, Primus does not gain management control but it is clear that it intends to influence existing management in a substantial way. To quote Primus managing director Jeroen Nieuwkoop: "We want to support the management team in developing a detailed business plan that outlines the opportunities for expansion and value creation."
  
  But then Nieuwkoop added, and we quote: "We are investors and not managers, and we do not want to step into the management's shoes. We leave that to Albert Lau (CEO of EON Bank) and his team."
  
  He said further that he had met the other shareholders and that there was no issue with them. Reports said that Primus executives had met Rin Kin Mei @ Rin Kei Mei, currently said to be the key person at EON Bank, EON Cap's main unit.
  
  Rin reportedly holds 15.4% in EON Cap, which together with Primus' stake of 20.2%, makes it 35.6%. Rimbunan Hijau group chief Tan Sri Tiong Kiew King has 17.1%, Khazanah Nasional Bhd, 10%, and the Employees Provident Fund, 5.3%.
  
  While it may not be officially in control, Primus certainly seems to be making announcements, which should rightly be coming from the board of EON Cap, for instance, the business plan, although Nieuwkoop says that EON Bank will release it.
  
  At the very least, that must mean that Primus must have had a lot of engagement with the board and existing management at EON Bank. And if it pays a 60% premium, it must have some amount of confidence that it will have at least some of its ways with EON Bank.
  
  Otherwise, why risk it, especially when you can take stakes in a number of local financial institutions if you think the Malaysian financial sector is so vibrant instead of putting all your eggs in one little basket for a huge price?
  
  And who is Primus anyway and how can it contribute? What expertise has it in running or helping to run a bank?
  
  At a press luncheon recently, Nieukwoop refused to even give out name cards and declined subsequent emailed questions to their local public relations agency by this newspaper. He did not disclose Primus' fund size or elaborate on its shareholders. He only said they comprised Middle Eastern investors, Asian families, and investors from other parts of the world.
  
  Very little information is available on Primus anywhere. Reportedly, Primus, set up in 2005, invests primarily in financial services companies. The EON Cap stake is its second investment after New China Life.
  
  The question that arises is, should such a fund be allowed to take a significant stake in a local bank and permitted to have such a strong influence, although not outright control, over management?
  
  It is high time the authorities took a more serious view of small stakes of less than the 33% trigger level changing hands at huge premiums on market prices, while significant management and directional changes take place behind the scenes. And there have been many such situations in Malaysia.
  
  Permitting some shareholders to benefit and exit from a listed company with a high price without the same benefit to all other shareholders is inherently unfair and smacks of insider dealings, which are unhealthy for the development of an equitable equity market.That's a situation that must not continue.

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Recommended commentary made by Salvatore_Dali

http://malaysiafinance.blogspot.com/2008/02/primus-pleases-itself-moolah-said-what.html