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<TABLE border=0 cellSpacing=0 cellPadding=0 width=452><TBODY><TR vAlign=top><TD>Hock Lock Siew
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Published May 10, 2010
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Sembcorp's Cascal woes are of its own making
By WONG WEI KONG
SEMBCORP Industries' troubled bid for water treatment firm Cascal NV is a good example of how not to do a deal. While the outcome remains to be seen, it's clear that Sembcorp could have avoided the potential pitfalls.
When Sembcorp announced late last month that it was offering to buy the New York-listed Dutch water company for US$206 million, the immediate reaction was positive. The acquisition would extend the reach of its water and wastewater treatment business across the globe. Its takeover of Cascal (which operates in eight countries including the UK, Indonesia and the Philippines) would boost the capacity of Sembcorp's water facilities, from four million cubic metres a day to nearly six million. The acquisition would also expand Sembcorp's water business - now in Singapore, China, the UK and the Middle East - to include South Africa and South America, spanning a total of 31 locations in 11 countries.
Then, the problems started popping up.
Exactly how the deal was done is still hazy. Sembcorp so far has been frugal with the details. But it appears that Sembcorp struck a deal behind the back of the Cascal board with the chairman of the company, who was an interested party in the transaction.
Discount
Sembcorp agreed with Cascal's biggest shareholder, Biwater Group, to acquire its 58.4 per cent stake in Cascal and to make an offer to buy out all Cascal shareholders at US$6.75 a share - an 11.3 per cent discount to the last-traded price of US$7.61 for Cascal shares before the announcement.
If Sembcorp secured less than 80 per cent of Cascal's shares, Sembcorp would cut its offer price for all Cascal shareholders, including Biwater, to US$6.40 per share. Biwater also agreed to sell its Cascal shares even at the lower price.
The crux of the matter is that the chairman of Cascal, Adrian White, is also Biwater's founder and executive chairman, with ultimate control of Biwater. Before its latest takeover bid, Sembcorp had approached Cascal's board directly with a similar offer, which was rejected by an independent committee of directors. Biwater then struck a deal directly with Sembcorp to sell its stake in Cascal.
Little wonder then that the Cascal board came out to pan the offer just hours after it was made. Cascal filed a suit against Sembcorp and its wholly owned unit Sembcorp Utilities in New York, claiming violations of US securities laws and breach of confidentiality agreements. The lawsuit sought a court order to stop Sembcorp's hostile takeover of Cascal and claimed unspecified damages. It called the structure of the proposed Sembcorp tender 'coercive' and said it would 'diminish the rights of shareholders to participate in Cascal's growth and share value appreciation'.
Sembcorp is, of course, assured of control of Cascal given the binding agreement with Biwater, but its plan to privatise Cascal now hangs in the balance given the hostile reaction of the board. But more than that, it may have put its reputation at risk.
Sembcorp has denied Cascal's claims, and has reiterated its position that it is 'not in breach of any laws, regulations or contractual obligations' in relation to its offer to buy out Cascal's shareholders.
But while no rules may have been broken, Sembcorp may not have acted circumspectly.
In the usual (and proper) scheme of things, a takeover offer is decided by the board of the target company, and the board is charged with the grave duty of looking after the interests of all shareholders, not just the controlling shareholders. If there are board members with a conflict of interest, then the offer should be decided upon only by members who are independent.
The Cascal board, it seems, followed this principle and rejected Sembcorp's earlier offer. But Cascal had a chairman who was conflicted and determined to strike a deal - which yielded control at a discount - and found a willing party in Sembcorp.
Unsavoury
This is the sort of deal that a group like Sembcorp - Temasek- linked and an established blue chip - should avoid.
Just what was Sembcorp thinking? Surely, it would have dawned upon the group that a deal struck in such a way could lead to potential problems. Surely, it would have realised that a deal struck like this wouldn't really be in the spirit of good corporate governance. Put another way: if Sembcorp itself became the subject of a similar bid, how would the group and board react? Not very differently from Cascal, one would imagine.
Now, some will argue that all's fair in love, war and business. Sembcorp was a willing buyer, and it found a (very) willing seller. And by buying at a depressed price, Sembcorp was actually furthering the interest of its own shareholders. It can also be said that it was not its job to strike a deal that would be fair to all Cascal shareholders.
But that carries more than a whiff of expediency, and there is a price to pay, which Sembcorp should be realising by now. Sembcorp may well seal control of Cascal and win in court - but it won't come out of this affair smelling like roses.<SCRIPT language=javascript> <!-- // Check for Mac. var strAgent; var blnMac; strAgent = navigator.userAgent; strAgent.indexOf('Mac') > 0 ? blnMac = true:blnMac = false; if (blnMac == true) { document.write('
'); } //--> </SCRIPT>
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</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Published May 10, 2010
</TD></TR><TR><TD vAlign=top width=452 colSpan=2>Sembcorp's Cascal woes are of its own making
By WONG WEI KONG
SEMBCORP Industries' troubled bid for water treatment firm Cascal NV is a good example of how not to do a deal. While the outcome remains to be seen, it's clear that Sembcorp could have avoided the potential pitfalls.
When Sembcorp announced late last month that it was offering to buy the New York-listed Dutch water company for US$206 million, the immediate reaction was positive. The acquisition would extend the reach of its water and wastewater treatment business across the globe. Its takeover of Cascal (which operates in eight countries including the UK, Indonesia and the Philippines) would boost the capacity of Sembcorp's water facilities, from four million cubic metres a day to nearly six million. The acquisition would also expand Sembcorp's water business - now in Singapore, China, the UK and the Middle East - to include South Africa and South America, spanning a total of 31 locations in 11 countries.
Then, the problems started popping up.
Exactly how the deal was done is still hazy. Sembcorp so far has been frugal with the details. But it appears that Sembcorp struck a deal behind the back of the Cascal board with the chairman of the company, who was an interested party in the transaction.
Discount
Sembcorp agreed with Cascal's biggest shareholder, Biwater Group, to acquire its 58.4 per cent stake in Cascal and to make an offer to buy out all Cascal shareholders at US$6.75 a share - an 11.3 per cent discount to the last-traded price of US$7.61 for Cascal shares before the announcement.
If Sembcorp secured less than 80 per cent of Cascal's shares, Sembcorp would cut its offer price for all Cascal shareholders, including Biwater, to US$6.40 per share. Biwater also agreed to sell its Cascal shares even at the lower price.
The crux of the matter is that the chairman of Cascal, Adrian White, is also Biwater's founder and executive chairman, with ultimate control of Biwater. Before its latest takeover bid, Sembcorp had approached Cascal's board directly with a similar offer, which was rejected by an independent committee of directors. Biwater then struck a deal directly with Sembcorp to sell its stake in Cascal.
Little wonder then that the Cascal board came out to pan the offer just hours after it was made. Cascal filed a suit against Sembcorp and its wholly owned unit Sembcorp Utilities in New York, claiming violations of US securities laws and breach of confidentiality agreements. The lawsuit sought a court order to stop Sembcorp's hostile takeover of Cascal and claimed unspecified damages. It called the structure of the proposed Sembcorp tender 'coercive' and said it would 'diminish the rights of shareholders to participate in Cascal's growth and share value appreciation'.
Sembcorp is, of course, assured of control of Cascal given the binding agreement with Biwater, but its plan to privatise Cascal now hangs in the balance given the hostile reaction of the board. But more than that, it may have put its reputation at risk.
Sembcorp has denied Cascal's claims, and has reiterated its position that it is 'not in breach of any laws, regulations or contractual obligations' in relation to its offer to buy out Cascal's shareholders.
But while no rules may have been broken, Sembcorp may not have acted circumspectly.
In the usual (and proper) scheme of things, a takeover offer is decided by the board of the target company, and the board is charged with the grave duty of looking after the interests of all shareholders, not just the controlling shareholders. If there are board members with a conflict of interest, then the offer should be decided upon only by members who are independent.
The Cascal board, it seems, followed this principle and rejected Sembcorp's earlier offer. But Cascal had a chairman who was conflicted and determined to strike a deal - which yielded control at a discount - and found a willing party in Sembcorp.
Unsavoury
This is the sort of deal that a group like Sembcorp - Temasek- linked and an established blue chip - should avoid.
Just what was Sembcorp thinking? Surely, it would have dawned upon the group that a deal struck in such a way could lead to potential problems. Surely, it would have realised that a deal struck like this wouldn't really be in the spirit of good corporate governance. Put another way: if Sembcorp itself became the subject of a similar bid, how would the group and board react? Not very differently from Cascal, one would imagine.
Now, some will argue that all's fair in love, war and business. Sembcorp was a willing buyer, and it found a (very) willing seller. And by buying at a depressed price, Sembcorp was actually furthering the interest of its own shareholders. It can also be said that it was not its job to strike a deal that would be fair to all Cascal shareholders.
But that carries more than a whiff of expediency, and there is a price to pay, which Sembcorp should be realising by now. Sembcorp may well seal control of Cascal and win in court - but it won't come out of this affair smelling like roses.<SCRIPT language=javascript> <!-- // Check for Mac. var strAgent; var blnMac; strAgent = navigator.userAgent; strAgent.indexOf('Mac') > 0 ? blnMac = true:blnMac = false; if (blnMac == true) { document.write('
'); } //--> </SCRIPT>
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