A popular line in the corporate world is that about 75 to 80 per cent of all mergers fail. Should Sime Darby Bhd (4197) be in that statistic? The short answer should be no. But undoubtedly the revelation of almost RM1 billion in losses would not help its cause.
The RM964 million hit is enough to almost wipe out its entire first-half net profit of RM1.11 billion and it could hurt its dividend payout for the year to June 30 2010. Another damage is likely to be its market value. As at May 12, the group was worth RM51.9 billion, making it the country's second most valuable listed company. It is also quite close to the leader Malayan Banking Bhd, which has a market value of RM53.8 billion.
Its reputation as a major conglomerate would also take a hit as Sime was one of the poster boys of the country's plan to reform its government-linked companies (GLCs). The group is a combination of three listed groups, the so-called mega merger, of Kumpulan Guthrie Bhd, Golden Hope Plantations Bhd and the former smaller Sime Darby. In fact, Sime could claim to be ahead of its GLC siblings in the race to become a regional champion by 2010 as per the GLC transformation schedule. In 2009, more than two-thirds of its revenue came from abroad.
Founded in 1910, the group employs more than 100,000 people in over 20 countries. So far, what we know now is that there have been questionable decisions related to corporate governance and these mistakes, which are being probed into, would lead to a big hit in its finances. The probe is centred in its energy and utilities division. The board started to probe one project but more questions surfaced on two others.
But the board doesn't plan to initiate a group-wide probe. This is rather unfortunate because minority shareholders would probably be concerned that if corporate governance was poorly exercised in one division, what about the four other core businesses? Sime makes most of its money from its plantation business but it also has interests in property, motors, industrial equipment and healthcare.
The board should establish that it has nothing to worry about from all its other businesses. It has already hired six outside consultants of legal firms and auditors, so it could ask them to expand their checks. Sime chairman Tun Musa Hitam said there was no basis to check other divisions because there is no basis to do so. In other words, no alarm has been raised. But using a simple analogy, if a room in our house catches fire, we would put it out and check the rest of the house because the same thing could also happen in other rooms.
Datuk Seri Ahmad Zubir Murshid has now paid the price because the losses came under his watch as group chief executive. But what about the board? There are those who are drawing a parallel to what happened at Maybank and how the lender's board have changed since reporting losses from the purchase of its Indonesian bank. The board is the ultimate caretaker of a company as it work to protect the interests of shareholders. This means that they are also responsible. At the very least, the directors need to offer their resignation.
Read more:
1. http://biz.thestar.com.my/news/story.asp?file=/2010/5/13/business/20100513102928&sec=business
2. http://www.btimes.com.my/Current_News/BTIMES/articles/simgo/Article/
3. http://www.btimes.com.my/Current_News/BTIMES/articles/wkn14/Article/index_html
4. http://biz.thestar.com.my/news/story.asp?file=/2010/5/15/business/6268762&sec=business
5. http://biz.thestar.com.my/news/story.asp?file=/2010/5/14/business/6259674&sec=business
6. http://www.theedgemalaysia.com/in-the-financial-daily/166058-sime-darbys-zubir-axed.html
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