Can listed firms withdraw announced deals because of Covid-19?
By Doreenn Leong |   |  Mainstream, Opinion

By Doreenn Leong

AS the saying goes, tough times call for tough measures. We are indeed going through hard times as companies are resorting to ways to conserve cash in order to stay afloat.

Recently, Affin Bank Bhd’s attempt to reduce its full-year dividend for 2019 to five sen a share from seven sen was rejected by Bursa Malaysia. Can the regulator do so? After all, this is a business decision and the banking group wants to conserve cash to weather through this difficult period.

That said, Bursa’s decision is seen as being beneficial to minority shareholders as they are not ‘robbed’ of the promised dividend to be paid.

“Bursa did the right thing as minority shareholders may have purchased shares on the strength of the announced interim dividend; to now renege on that announcement will definitely be unfair to minority shareholders. A PLC’s word should be its bond,” Minority Shareholders Watch Group (MSWG) CEO Devanesan Evanson told FocusM.

Affin announced that Bursa has rejected its revision application without stating any reason for the rejection.

The group said it was seeking to preserve capital and liquidity in view of the economic slowdown and its support of Bank Negara Malaysia’s measures amid the Covid-19 outbreak.

“But preserving capital and liquidity is such a subjective evaluation. What if every PLC gives this as a reason to reduce or even not pay dividends that have been declared. Such a situation would definitely be unfair to the minority retail shareholders.

“A company can renege on its declared dividends if it is of the opinion that it cannot meet the solvency test. Such uncertainty may infringe on the fair and orderly market that Bursa is obliged to ensure,” Evanson said.

Under the Companies Act 2016, the Board can prevent the distribution of a dividend, which has been authorised, if it ceases to be satisfied that the company will be solvent immediately after the distribution is made. This is called the solvency test for distribution.

Interim dividends are decided by the Board and final dividends are decided by the shareholders.

According to Evanson, although Bursa had turned down Affin’s application, this does not mean that the banking group cannot ask its shareholders for approval to cut the interim dividends which have been declared.

Then we have Datuk Tony Tiah Thee Kian’s TA Enterprise Bhd (TAE), which is trying to take back what was offered. The stockbroking group had submitted an application to the Securities Commission (SC) to withdraw its voluntary takeover offer (VGO) to acquire up to 39.83% stake in property group TA Global Bhd (TAG).

Of course, TAE blamed it mainly on the Covid-19 pandemic. It said the pandemic had adversely impacted TAG in the financial year ending Dec 31, 2020 (FY20) as operations of several hotels under TAG were temporarily halted.

Granted that hotel operators and many other industries are bearing the brunt of the outbreak, which saw global economies coming to a stop as countries try to break the pandemic chain. But an offer is an offer. Minority shareholders would have taken positions on the strength of the announcement of the takeover offer.

“To withdraw the VGO now is therefore unfair to them. Everyone is affected by the pandemic, especially the minority retail shareholders. Subsequent to the news of the application for the withdrawal, the share prices of the affected PLCs have trended lower due to the uncertainty as to whether a withdrawal would be granted. Some minority shareholders would have cashed out, at a loss, due to the current uncertainty.

“Shareholders would like a certain level of certainty so that they can invest with confidence. If a withdrawal is granted, there would be uncertainty if any of the other already-announced corporate actions may be withdrawn,” Evanson pointed out.

Also, the takeover offer should not change just because the company’s financials have turned for the worse. If the reverse had happened, as in if TAG performed exceptionally well, will Tiah revise its offer price upwards?

Under the offer announced on Feb 12, TAE planned to acquire up to 2.12 billion shares in TAG, representing up to 39.83% interest, for 28 sen per share or RM593.43 mil.

To part-fund the deal, TAE proposed the issuance of up to 550.54 million new TAE shares at 66.5 sen apiece, to be subscribed by controlling shareholder, Tiah.

But shares of TAG have since dropped to a 52-week low of 20.5 sen while TAE shares declined to a year low of 46.5 sen.

Surely, with the continued decline in the share price of both counters, it would be cheaper for Tiah to mop the shares from the open market versus via the takeover exercise.

As such, it appears to be in the best interest of Tiah to abort the deal as minority shareholders would probably not hesitate to take the offer if it is not withdrawn. Now, it is up to the SC to exercise its wisdom in this case.

The regulator would not want to start an unhealthy precedent, especially when Bursa did the right thing to protect minority shareholders’ interest by turning down Affin’s application to reduce its interim dividend. - May 13, 2020

Most Viewed