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Value Creation in the Takeover of Amanah Mutual Berhad

by Amanah Saham Nasional Berhad

Im Xaxanuhani Zulkifli (CGA 050105)

Khadijah Sairah Ibrahim (CGA 050146)

Submitted to the Graduate School of Business

Faculty of Business and Accountancy
University of Malaya, in partial fulfillment
of the requirements for the Degree of
Master of Business Administration

June 2008


First and foremost, we would like to express our utmost gratitude to the Almighty, God,
for giving us the strength, health and willpower to complete this research. Without His
willingness this research could never be a success.

We are very grateful to the Management and staff of PNB, ASNB and AMB for their
consent and great assistance during our data gathering that consequently allow all the
relevant information to fit into the right places in this research. Our most appreciation
and thanks to the inspiring leader of ASNB, Encik Idris Kechot, the Executive Director
and Head of ASNB for making his time for us to share important information and
insights into the most significant area of concern under this research.

Our heartiest thanks to Professor Madya Dr. M. Fazilah Abdul Samad, whose advice and
guidance meant a lot to us. Your dedication to the students of University of Malaya, as a
supervisor, a lecturer and most importantly as the Director of the Graduate School of
Business is invaluable and is never forgotten.

To our parents, spouse, children, families and friends a million thanks for the
understanding, support and encouragement. The heart-breaking and testing moments
during our absence by their sides are the most valuable challenge that made our bonds
stronger and closer than never before.


Amanah Saham Nasional Berhad (ASNB), a wholly-owned subsidiary of Permodalan

Nasional Berhad (PNB) was incorporated on 22 May 1979, as part of the governments
objective under the New Economic Policy (NEP) to promote equity ownership in the
corporate sector among the Malaysians, especially Bumiputera. ASNB has developed
opportunities for Malaysians to participate in the creation and management of wealth
through its unit trust products, which has been somewhat a successful special vehicle of
the government to pool funds from individuals and mobilize them into performing
corporate sectors through investments into sound private and public listed companies.

Although ASNB has been the market leader in the unit trust industry with the control of
more than 50% of the industrys net asset value (NAV) in terms of the assets under
management, the intensity of competition in the industry has seen the need for ASNB to
grow. In order to strengthen its position in the marketplace and be better able to keep
abreast with the challenges ahead in the light of market liberalization and globalization,
one of the fastest ways to grow is through related mergers and acquisitions (M&A) or
takeover. The main reason underpinning the takeover initiative of ASNB was to grow not
only in size, but also revenues, profitability, productivity, capabilities, skills and expertise
in its business operations and core competencies building.

Amanah Mutual Berhad (AMB), formerly known as Mayban Unit Trusts Berhad
(MUTB), was seen as the best possible suitor for this corporate strategy and that ASNB

hoped to achieve value creation from the synergistic sharing of activities, technology and
core competencies along the value chain leading to economies of scale and scope through
this related takeover and integration of AMB with the company. While, value creation
was expected to be achieved, the post-takeover integration proved to be slower than
expected to enable the company to operationalize and realize the anticipated value.

Therefore, this study aims to investigate not only the issues faced by ASNB in the posttakeover integration process, but also to evaluate the purchase consideration made for the
takeover, the types of financing used, achievement of the motivation for the takeover and
the value created post-takeover on a consolidated account.

In terms of takeover settlement, the findings suggested that ASNB has made a value buy
for AMB at the Net Tangible Asset (NTA) relative to the Discounted Cashflow (DCF)
valuation indicating three (3) times premium of AMBs NTA at the point of settlement in
November 2006. On the back of excessive cash reserves, the takeover was internally
funded via cash settlement. However, the optimal capital structure analysis suggested that
a debt ratio of 20% would provide tax incentives to ASNB for better earnings reflection
under the leveraging principle.

ASNB, to a certain extent has partly achieved its takeover objectives in terms of business
size, broader market penetration and wider market segments, but the slower integration
process of relevant and redundant functional activities resulted in disability of achieving
economies of scale post-takeover. The anticipated synergy value on a consolidated

account was far from reaching the expectation of the management based on the results of
the profitability analysis which indicated the erosions in net profit margin, return on
assets (ROA) and return on equity (ROE) of ASNB in 2007. The lower consolidated
ROE reflected lower shareholders value coming from the takeover. The findings of this
study suggested the need for efficient and effective corrective measures moving forward
so as to realign and redirect resources towards meeting the companys initial motivations
for the takeover.

CHAPTER 1: INTRODUCTION................................................................................... 1

DEFINITIONS.............................................................................................................. 3


DEVELOPMENT OF M&A ....................................................................................... 5


STUDY OBJECTIVE .................................................................................................. 8


IMPORTANCE OF THE STUDY .............................................................................. 9


ORGANIZATION OF THE STUDY ....................................................................... 10

CHAPTER 2: LITERATURE REVIEW .................................................................... 13


M&A AS PART OF CORPORATE STRATEGY .................................................. 13


THE RATIONALS BEHIND M&A ......................................................................... 15


Theoretical Motive for M&A ................................................................................ 17

Synergy .................................................................................................................... 18
Growth and Expansion .......................................................................................... 20
Value creation within M&A .................................................................................. 21
M&A PROCESSES .................................................................................................... 24
Pre M&A Stage ...................................................................................................... 25
Negotiation Process ................................................................................................ 28
Post M&A Integration ........................................................................................... 29

CHAPTER 3: RESEARCH METHODOLOGY ......................................................... 34


RESEARCH QUESTIONS........................................................................................ 34


RESEARCH LIMITATIONS ................................................................................... 35


METHODOLOGY ..................................................................................................... 36


Data Collection and Sampling............................................................................... 36

Methods of Valuation............................................................................................. 37



THE CONCEPT OF UNIT TRUSTS ....................................................................... 38


THE UNIT TRUST INDUSTRY IN MALAYSIA .................................................. 40


The Market ............................................................................................................. 40

Market Growth....................................................................................................... 41
Market Trends........................................................................................................ 43
Market Demographics ........................................................................................... 45


BACKGROUND OF ASNB....................................................................................... 47


THE MISSION AND VISION OF ASNB ................................................................ 48


ASNBS PRODUCT LINE ........................................................................................ 49


THE BUSINESS MODEL OF ASNB ....................................................................... 51


Distribution Channel ............................................................................................. 51

Distribution Fee ...................................................................................................... 53
Sales Incentive ........................................................................................................ 54
Breakdown of Management and Services Fee ..................................................... 54
Human Capital Strength ....................................................................................... 55

CHAPTER 5: THE TAKEOVER PROCESS OF AMB ............................................. 56



Business Expansion ................................................................................................ 56
Usage Gap - New Market Penetration.................................................................. 57
Product Gap - Better Product Design and Offer ................................................. 58
Distribution Gap - Economies of Scale and Scope .............................................. 59
Competitive Gap - Improve Image and Brand Reputation................................ 60
PRE ACQUISITION STAGE ................................................................................... 61
Screening For Potential Target ............................................................................. 62
Selection Of Target ................................................................................................ 80
THE SELECTED TARGET AMB ........................................................................ 80
Business Expansion ................................................................................................ 82
New Market Penetration ....................................................................................... 82
Better Product Design and Offer .......................................................................... 83
Economies of Scale and Scope ............................................................................... 84
Improve Image and Brand Reputation ................................................................ 84


THE TAKEOVER TIMELINE ................................................................................ 85


THE DUE DILIGENCE PROCESS ......................................................................... 86


POST ACQUISITION INTEGRATION PROCESS .............................................. 88


Integration of Major Functions ............................................................................ 88

AMBS Product Line ............................................................................................. 97
The New Organizational Structure .................................................................... 102

CHAPTER 6: RESEARCH ANALYSIS AND RESULTS ....................................... 104


PRICING THE TAKEOVER ................................................................................. 104

Takeover Price based on Indicative Valuation .................................................. 104
Fair Valuation based on DCF ............................................................................. 107
Comparative Premium or Discount to Indicative Valuation ........................... 118
MEASURING VALUE CREATION ...................................................................... 118
Profitability Ratio................................................................................................. 122
Receivables Turnover Ratio ................................................................................ 123
Asset Turnover Ratio ........................................................................................... 124
Companys Net Worth ......................................................................................... 125
MEASURING ECONOMIES OF SCALE............................................................. 125

CHAPTER 7: SUMMARY AND CONCLUSION..................................................... 127


GROWTH ACHIEVEMENT.................................................................................. 127


OPERATING SYNERGY ....................................................................................... 130


Market Penetration .............................................................................................. 130

Product Development Capability........................................................................ 132
Distribution Capacity........................................................................................... 132
Economies of Scale ............................................................................................... 133
Brand Reputation ................................................................................................. 134
REVENUE-ENHANCING SYNERGY .................................................................. 135
Reduced Number of Staff .................................................................................... 135
Shared Services cost-cutting............................................................................. 135
Combined Profits ................................................................................................. 136
FINANCIAL SYNERGY ......................................................................................... 136
Access to Capital .................................................................................................. 136

CHAPTER 8: RECOMMENDATIONS ..................................................................... 138




INTEGRATION OF CORE FUNCTIONAL ACTIVITIES ................................ 139


Integration of Unit Trusts Systems ..................................................................... 140

Integration of Unit Trusts Operations ............................................................... 140
Integration of Financial Reports......................................................................... 141
New Product Introduction ................................................................................... 141
Marketing ............................................................................................................. 142


COMMUNICATIONS ............................................................................................. 143


GLOBAL COMPETITION ..................................................................................... 145


Figure 1: Value of M&A Deals in Malaysia from 2004 to 2006 ................................................... 7

Figure 2: Type of Synergies.......................................................................................................... 18
Figure 3: The deal flow of M&A .................................................................................................. 24
Figure 4: Four Stages of Negotiation Process............................................................................. 28
Figure 5: The Unit Trust Concept ................................................................................................ 39
Figure 6: Unit Trusts Industry Trends......................................................................................... 42
Figure 7: Industry Subscription Rate versus NAV ...................................................................... 43
Figure 8: New Funds Launched by Types ................................................................................... 44
Figure 9: Forecast of Malaysian Population............................................................................... 46
Figure 10: ASNB Offices Nationwide .......................................................................................... 52
Figure 11: The Distribution Channel of the Mutual Fund Industry.......................................... 60
Figure 12: Equity and Operational Structure of ASNB, AMB and AUTB ................................ 67
Figure 13: Post Acquisition Organizational Structure.............................................................. 103


Table 1: Unit Trusts Industry Statistics ___________________________________________ 41

Table 2: ASNB Product Information _____________________________________________ 50
Table 3: Number of Agents Networks ____________________________________________ 52
Table 4: Malaysian Unit Trusts Fees _____________________________________________ 55
Table 5: General Overview of Product Lines and Size _______________________________ 65
Table 6: Business Model Comparisons ___________________________________________ 66
Table 7: ASNB Products Fee Structure ___________________________________________ 72
Table 8: Takeover Timeline ____________________________________________________ 85
Table 9: AMB Product Line ____________________________________________________ 99
Table 10: Company Indicative Valuation of the Takeover Price ______________________ 105
Table 11: Regression of AMB Earnings Return against Market Return ________________ 111
Table 12: Indication of Optimal Capital Structure _________________________________ 112
Table 13: DCF Valuation of AMB ______________________________________________ 116
Table 14: Forecast Assumption for DCF Valuation ________________________________ 117
Table 15: Income Statement of ASNB and AMB __________________________________ 119
Table 16: Balance Sheet of ASNB and AMB _____________________________________ 120
Table 17: Key Financial Ratio of ASNB and AMB _________________________________ 121
Table 18: Per unit Cost of Units in Circulation ____________________________________ 126


Approved Fund Size


Amanah Malaysia Berhad


AMB Balanced Trust Fund


AMB Dana Arif


AMB Dana Ikhlas


AMB Dividend Trust Fund


AMB Dana Yakin


AMB Enhanced Bond Trust Fund


AMB Ethical Trust Fund


AMB Index-Linked Trust Fund


AMB Income Trust Fund


AMB Lifestyle Trust Fund 2009


AMB Lifestyle Trust Fund 2014


AMB Lifestyle Trust Fund Today


AMB SmallCap Trust Fund


AMB Unit Trust Fund


AMB Value Trust Fund


Skim Amanah Saham Bumiputera


Sekim Amanah Saham Nasional


Amanah Saham Nasional Berhad


Asia Unit Trust Berhad


Base Lending Rate


Commerce Asset Funds Managers Sendirian Berhad


Capital Asset Pricing Model


Cycle & Carriage Bintang Berhad


Cycle & Carriage Malaysia Sendirian Berhad


CIMB Bank Berhad


Commerce Trust Berhad


Discounted Cash Flow


DRB-Hicom Berhad


Employee Provident Fund


Free cash flow to the firm


Fund Transfer Protocol


Group Chief Executive Officer


Head Quarters


HSBC Bank Malaysia Berhad


Identification Card


Investment Management Agreement


Initial Service Charges


Individual Unit Trust Agents


International Unit Trusts System


Kuala Lumpur Composite Index


Mergers and Acquisition

MAA Mutual

MAA Mutual Berhad


Malayan Banking Berhad


Market Capitalization


Management expense ratio


Malaysian Government Securities




Malaysian Industrial Development Finance Berhad


Malaysian Insurance Institute


Memorandum of Understanding


Mayban Unit Trusts Berhad


MBF Unit Trust Management Berhad


Net Asset Value


New Economic Policy


Net Tangible Assets


OCBC Bank (Malaysia) Berhad




Public Listed Company


Pos Malaysia Berhad


post M&A integration plan


Permodalan Nasional Berhad




RHB Bank Berhad


Return on Asset


Return on Equity


Securities Commission


Structured Investment Fund


Singapore Unit Trusts Limited


Units in Circulation


United States


United States Dollar


Unit Trust Management Companies


Unit Trusts System


Weighted average cost of capital


Yayasan Pelaburan Bumiputera



Unlevered Beta

Levered Beta

Terminal growth rate


Cost of debt


Cost of equity


Rate of return on debt


Risk free rate


Return on long term assets/debts


Return on market


Risk Premium


Return on treasury bills

Taxation rate


Appendix 1: Interview Questionnaires with the Management

Appendix 2: Credit Spread of Different Investment Grade Corporate Bonds
Appendix 3: Historical MGS Returns
Appendix 4: Historical KLCI Returns
Appendix 5: AMBs Pro-forma Income Statement for the Financial Year 2006 2010
Appendix 6: AMBs Pro-forma Balance Sheet for the Financial Year 2006 - 2010
Appendix 7: ASNBs Consolidated Income Statement for the year ended 31 Dec.
Appendix 8: AMBs Net Annual Unit Trusts Sales for 2005 - 2007
Appendix 9: Newspaper cutting PNB lamcar dana baru RM3b
Appendix 10:Newspaper cutting PNB offers commercial fund


In the aftermath of the Asian Financial Crisis in 1997, mergers and acquisitions
(M&A) have become a significant effort by governments in Asian countries like
Korea, Japan, Thailand and Malaysia to consolidate and restructure their financial
sectors to cope with the market expectation and increasing number of global
demands. The rapid consolidation of the national banking, insurance and capital
markets is driven by the need to develop strong financial institution and meet the
challenges of global competition. (The Malaysian Insurance Institute (MII) and
Andersen Consulting, 1999).

Over the years, mergers and acquisitions have been used as a tool for firms to
expand their business operations and corporate growths. They are one of the most
important growth options available for firms and it plays a major economic role to
firms in achieving or maintaining their competitive advantage by anticipating and
adjusting to changes.

According to Angwin (2001), mergers and acquisitions have a unique potential to

transform firms and contribute to corporate renewal. They enable a firm to renew
its market position at a speed not achievable through internal development
(Haspeslagh and Jemison, 1991; Harrison, 2002). M&A also provides a platform
for the firm to grow in a fast route and in a less risky attempt as compared to
setting up new businesses.

Langford and Male (2001) identified three means of achieving corporate growth
and development. The growth can be achieved internally where the firm invests
its own capital to set up and operate a new venture. Another means of growth is
through external expansion. This includes merger and acquisition and this
approach is often used where speed is the essence. Corporate growth could also be
achieved through combination of strategy in which it combines elements of
internal and external development through contractual agreement.

In mergers and acquisitions, firms are allowed to acquire new products, skills,
customers and compete in a broader market segments as compared to before.
Ironically, M&A may be one of the easiest ways for firms to obtain substantial
financial returns and penetrate new markets while enjoying other benefits in the

Undeniably, one of the most difficult tasks in an M&A is to find the right partner
and ensure that the new entity would be able to meet the expectations and the
preset objectives. Therefore, from the beginning process of identifying the right
partner up to the continuous implementation of the preset objectives, there are a
lot of activities in M&A that need to be considered in details. These activities
involved intensive, rigorous and critical processes, especially in the three main
stages pre M&A, negotiation process and the post M&A stage. Every activity is
designed in details to ensure the critical objectives in each stage are clearly
defined and addressed.

Hence, due to the complexity and intensity of each M&A process, M&A should
not be treated as a set of unrelated initiatives controlled by different parts of the
management but it should be handled as an integrated program instead. They are
merely a starting point and not the end itself. It must not be viewed in isolation as
it moves things beyond short-term profit making. Managing M&A is a big-scale
effort which deals with the visualization of how the new entity fairs in the future
and also concerns with the present positioning of the firm in the marketplace.



The term merger and acquisition or M&A has been used synonymously in most
studies and the terminology can vary considerably depending on the text used. A
merger is defined as the combination of two companies of roughly equal size,
pooling their resources together into single business. The shareholders or owners
of both pre-merger companies have a share in the ownership of the merged
business and the top management positions after the merger (Malaysian Investor.
URL: Last assessed 16 March 2008).

The definitions used in this study follow that of Fauzias (2003), in which a merger
is defined as a combination of two companies where one loses its corporate
existence and the surviving company acquires both the assets and the liabilities of
the merged company.

An acquisition in general is defined as a transaction in which a buyer acquires all

part of the assets and business of a seller, or all or part of the stocks or other
securities of a seller. Within the general terms of acquisition, there are more
specific forms of transactions such as takeover, asset acquisition, stock acquisition
and consolidation.

Specifically, take over is referred to as a transaction when the acquiring company

acquires control over the assets of the target company, either directly or indirectly
through control of either the voting rights or the management of the target

A takeover can occur in two ways, through proxy contest and tender offer. The
former occur when an insurgent group attempts to gain controlling seats on the
board of directors while the tender offer occur when a bidder makes an offer
directly to shareholders to buy some or all of the shares of the target firm.

The bidder usually offers a cash price per share to the target company's
shareholders or the bidder's shares to the shareholders of the target company
according to a specified conversion ratio. Either way, the acquiring company
essentially finances the purchase of the target company, buying it outright for its

An asset acquisition occurs when the buyer acquires all or part of the assets and
business from the seller while a stock acquisition involves a transaction where the
buyer acquires the outstanding stocks from the stockholders of the seller.

A consolidation on the other hand, is a combination of two companies whereby an

entirely new company is formed. Both the old companies cease to exist and their
existing shares are exchanged for shares in the new company.

Despite the formal distinctions, the term merger and acquisition (M&A) is usually
used interchangeably. The bottom line to this idea is not the distinction in the
meaning but more often the net result that actually matters. Ultimately, two
companies that had separated their ownership are now operating under the same
roof, usually to obtain some strategic or financial objectives.



History has indicated that high number of merger activities reached its peak in
late 1990s which was mainly related to the powerful change forces such as
technological change, economies of scale and economies of scope, globalization
and changes in industrial organization. Today, no firms are considered safe and
untouchable from the possibility of being taken over and merge with another firm.

The 1980s produced approximately 55,000 mergers and acquisitions in United

States (US) alone. By 1984, the statistics had recorded a total dollar volume of
M&A in the United States to USD 100 billion and by end of the decade, the value
of the M&A during was approximately USD 1.3 trillion (Grinblatt, Titman,

According to Hitt, Harrison & Ireland (2001), mergers and acquisitions started
massively in 1998 where a large number of companies started to merge with
another company. This phenomenon leads to a record merger of Citibank and
Travelers in US in 1998 with an estimated value of USD 77 billion in value and
another big merger of Exxon and Mobil for an estimated value of USD 79 billion.
When Traveler and Citibank merged to form the financial giant Citigroup, it
signified the beginning of the Megamerger Wave. History has never seen a
consolidation of this size before.

Domestically, Malaysian companies had started to involve in mergers and

acquisitions both local and abroad in the 1990s during the mergers of banks and
financial institutions which had resulted in reducing number of 54 financial
institutions to 10 anchor banks. The onset of the Asian financial crisis caused
many companies to be in financial distress especially the highly leveraged ones
(Seah Ern Loon Michael, 2005). After more than 10 years ahead, 2006 revealed
spectacular triple digit growth steered largely in plantation sector and the big leap

in M&A value has propelled Malaysia to pole position in the region, behind China
and India.










PricewaterhouseCoopers (PwC Alert, Issue 57, 2007) revealed that in 2006 alone,
the announced value of M&A was more than doubled to RM 120.4 billion. The
major increase was attributed to the top three deals for the year, including
Synergy Drive Berhads merger, Wilmar Internationals acquisition of PPB Oil
Palms Berhad and MMC Corporation Berhad taking over Malakoff Berhad
private. The table below shows the increasing value of M&A deals from 2004 to

Figure 1: Value of M&A Deals in Malaysia from 2004 to 2006







Value of Announced M&A Deals

Source: PwC Research (PwC Alert, Issue 57, 2007)



The primary purpose of merging and acquiring new firms is usually to improve
overall performance (Lubatkin, 1993) by achieving synergy, or the more
commonly described as the 2+2=5 effect (Cartwright and Cooper, 1993;
Hovers, 1971) between two business units that will increase competitive
advantage (Porter, 1985, Weber, 1996).

The 2+2=5 effect mentioned in the previous studies is realistically referred to a

value creation process. Value creation is the important objective in a successful
acquisition. No matter how attractive is the business opportunity associated with
an acquisition process, the value is not created until capabilities are transferred
and people from both organizations collaborate in order to create the expected
benefits and the unpredicted opportunities. This collaboration relies on the will
and ability of managers from both organizations to work together towards
achieving the objectives (Salama, Holland and Vinten, 2003).

Some takeover or acquisitions are driven by new markets access possibility or

even to acquire market power. Some firms also engaged in acquisition to exploit
scale economies as firm size may also bring financial economies benefit by
offering access to capital markets and reducing the cost of capital.

However, the majority of these studies is not industry specific and is not always
involved in related acquisitions as the companys analyses appear to be chosen
randomly from a range of industries (Delaney and Wamuziri, 2004).

Therefore, the objective of this study is aimed to investigate the basic issues in an
acquisition or a takeover, motivation for the takeover, the types of financing used
and value creation with a focus on the takeover of Amanah Mutual Berhad
(AMB) (formerly known as Mayban Unit Trusts Berhad (MUTB) by Amanah
Saham Nasional Berhad (ASNB).

It is hoped that this study unveils the

achievement of the motivation for the takeover, revealing whether or not the
acquisition led to value creation gained from the synergistic sharing of activities,
technology and core competencies along the value chain leading to economies of
scale and scope.



This study could be of importance to decision makers within ASNB to explore the
factors that contribute to the synergistic value creation in the takeover and
compare the financial achievements of both the bidder, ASNB, and the target,
AMB, pre and post-takeover.

It is very essential for the management of ASNB to realize the effects and
importance of the takeover to their organization. The assessment of the overall

takeover process would bring some salient points on the best practices following
an M&A in the implementation strategy at the advantage of the company and the
best interest of companys shareholders.

The result of the study could also aid decision makers and managers in gauging
various critical factors influencing successful value creation in any takeover bid
and make use of the findings to review implementation strategy and redirect
resources towards achieving the originally anticipated target.



This study starts off with Chapter Two on Literature Review, focusing on the
need for firms in seeking benefits through M&A as part of their corporate strategy
and shared on the common types of M&A and its categories. This section also
examines the rationales behind any M&A and out of numerous motivations cited
before, three common motives that drive any company to join the M&A
bandwagon mainly imputable to growth and expansion, synergistic factor and
value creation from the M&A exercises. This chapter also emphasizes on the
typical life cycle of an M&A process and reviews on each significant stage
particularly in Pre-M&A, Negotiation Process and Post-M&A stages.

Chapter Three underlines the research methodology applied in this study and
Chapter Four scrutinizes on the industry outlook of unit trusts in Malaysia and


also the background of ASNB as the acquirer in this case. The concept of unit
trust is explained to give a clear knowledge on how the mechanism works and
helps in understanding the terms used in later sections. The unit trusts industry in
Malaysia has expanded at the steepest pace since 1994 and in recent years the
upward trend has signaled positive signs for future growth. The factors such as
market trends, growth and demographics contribute to the recent development in
unit trusts. Chapter Four also explicates in details the background of ASNB, the
business model adopted by the company and their product lines.

Chapter Five focuses on the takeover process of AMB by ASNB and understands
the motivations that drive ASNB to initiate the takeover on AMB. The main
reason underpinning the takeover initiative of ASNB is to grow not only in size,
but also revenues, profitability, productivity, capabilities, skills and expertise in
its business operations and core competencies building. This section examines in
details the advantages of the takeover in terms of business expansion factor,
economies of scale and scope, product design and offer, market penetration and
distribution channels factor. The analysis also focuses on the takeover process of
AMB on each critical takeover stage: pre-takeover stage, due diligence process
and post-takeover implementation process.

Chapter Six outlines the valuation of the takeover price based on Indicative
Valuation Method and Discounted Cash Flow Valuation Method. This section
measures the creation of value consequential from the takeover, of whether it


brings synergy to ASNB. The key performance ratios are referred to in the
reflection of performance of ASNB before, during and after the takeover. The
calculations also focus on measuring the economies of scale achieved by ASNB
post-takeover. In measuring the economies of scale, comparisons of per unit
production cost based on consolidated basis as against standing alone operations
would be made.

Chapter Seven and Eight on Conclusion and Recommendation summarize the

findings in this study and propose some suggestions in which ASNB should take
large steps in improving some of their business operations, marketing initiatives,
human capital and technology in order to meet the expectations of their
stakeholders and unitholders.





There are numerous types of corporate strategy that take place in todays financial
landscape. The corporate strategy includes M&As, takeovers, divestitures,
alliances, joint ventures, restructuring, minority investments, licensing and
franchising as well as international activities. Generally, M&A activities in either
merger or acquisition can be categorized into three categories that are Horizontal,
Vertical and Conglomerate.

Weston, Mitchell & Mulherin (2004) specified that horizontal deals involved
combination of two firms that operated and competed in the same business
activity. The formation of a larger firm may benefit them on economies of scale
but this kind of combination is heavily regulated by the government to avoid
possible negative competition and monopoly profits creation.

A local example of this type of acquisition is the acquisition of Cycle & Carriage
Malaysia Sendirian Berhad (CCM) by Cycle & Carriage Bintang Berhad (CCB).
CCM was a distributor and retailer of Mitsubishi and Mazda cars while CCB
involved in the assembly, distribution, retail and after sales service of Mercedes
and Mazda (Fauzias, 2003).


Vertical combination, on the other hand involved merger or acquisition of firms in

different stages of production operation such as the supplier merging with the
producer of a product or acquisition of the supplier company. The main rationale
behind this activity is to achieve efficiency and transaction cost reduction. A local
example of this kind is the acquisition of Palmco Holdings which involved in
oleochemical business by two plantation giants, IOI Corporation Berhad and Sime
Darby Berhad in 2001.

A conglomerate deal involved firms engaged in unrelated types of business

activity and uncommon business ties. Among the conglomerate deals, there are
three types of combinations that have been distinguished. There are production
extension mergers that broaden the product lines of firms, geographic market
extension that involves two firms whose operations have been conducted in nonoverlapping geographic areas and pure conglomerate deal that involve unrelated
business activity (Weston et al., 2004). For an instance, the merger and
consolidation of the DRB-Hicom Berhad group of companies (DRB) in 2001,
under which DRB acquired Gadek (M) Berhad, Gadek Capital Berhad and Hicom
Holdings Berhad.




Numerous reasons have been put forward to justify the drivers behind every
M&A activity. Many cited that the motivation to pursue a merger or acquisition
depends on the companys strategic objective. These include synergies, growth
and expansion, operations efficiency, cost cutting or asset stripping to enhance the
shareholders value.

There are some companies which merged to concentrate on global market

strength, taking advantage of the changing industry landscape and there are also
some companies which involved in the M&A activities to take the advantage of
the widely spread paradigm of big is beautiful (MII and Andersen Consulting,

Any company that involved in a merger or acquisition would benefit and

experience boosted economies of scale, greater sales revenue and market share
in its market, broadened diversification and increased tax efficiency. These are
some of the driving forces for the company to achieve synergy or revenue
enhancement. However, the underlying business rationales and financing
methodologies for mergers or acquisition are substantially different. (URL Last assessed 16 March,


There are various factors and forces influencing companies into M&A, in the light
of changing business environment today. The more dynamic business fields at
present and beyond induces many corporations and industries to look into better
ways of doing business.

Firms acquiring other companies for non-financial

reasons can be described by the growth-maximization theory, an approach which

holds that management maintains an active acquisition program to build corporate
size, visibility, and consolidate power. (Sisaye, S. 1998).

Apart from growth strategy facilitated through M&A, the preparation towards
facing future business challenges would be one of the justifications underpinning
M&A. The fundamental role of M&A activities is to enable adjustment to new
challenges and opportunities more effectively. If done efficiently, M&As can
increase revenues and market shares, improve profitability and enhance enterprise
values. (Weston, J. Fred, Weaver, Samuel C. 2001).

While most corporations seek for growth, value creation and synergy through
M&A, many economies view M&A as an attractive tool to overcome excesses in
capacity in a number of industries. The mergers of banking and financial services
institutions for instance facilitate the consolidation and reduction of the
unnecessary and unwanted capacity.



Theoretical Motive for M&A

Fauzias (2003) signified that there was no general or unifying theory about
mergers and that there maybe numerous reasons for and effects of merger
activity. However, one of the theories that can be regarded as the main
causes behind mergers and takeovers is the shareholders wealth
maximization theory. This theory requires that a merger or acquisition
leads to the increase in profitability for the bidder as well as the target
firm, notably from synergy either from operations, financial or managerial.

Financial synergy is achievable from the ability of the bidder to take

advantage of the target firms financial positions. It results in either lower
cost of capital, lower cost of debt, greater debt capacity or higher price
earnings ratio.

Operational synergy can be achieved from economies of scale in

production and distribution. Haley and Schall (1979) indicated that this
operational synergy has a direct effect on income and cash investment
since the combined firms can produce more cheaply (lower cost) or sell
the product more efficiently (higher revenue).

Managerial synergy results when the bidders manager possesses superior

planning and monitoring abilities that benefit the targets performance.




The Malaysian Insurance Institute and Andersen Consulting (1999)

articulated that the common rationale for M&A activities is synergy. The
synergistic values as mentioned above - Financial Synergy, Operational
Synergy and Managerial Synergy can be achieved either in long term or in
short term durations. These synergistic values were claimed to create real
value to the merged firm by creating an entity whose value is greater than
the sum of the two parts. This increase in value will result from three types
of synergies as shown in the diagram below:

Figure 2: Type of Synergies




Economies of skills result from the acquisition of specialist expertise such

as technical or managerial knowledge. The acquiring company can
increase its skill set and generate value by utilizing the expertise of the

acquired firms staff. This is particularly true in rapidly developing

product markets or in foreign markets where different practices dominate.
Retention of key personnel is the key to the success of these deals. A local
example of this is Perusahaan Otomobil Nasional Berhads (Proton)
acquisition of Group Lotus International in 1996.

Economies of scale occurs when output increases, reducing the cost per
unit and increasing margins and profitability. In general terms, the larger a
company becomes, the more opportunities there are for reducing costs in
areas such as purchasing, manufacturing, administration, distribution and
marketing. An example of this can be found in the merger of Glaxo
Wellcome plc and SmithKline Beecham plc which formed the worlds
largest pharmaceutical firm, GlaxoSmithKline (GSK). Preventing the
duplication in R&D and some production facilities should allow
management to achieve significant cost savings.

And economies of scope result from diversifying into new markets or

acquiring new products that can allow the acquirer to increase its customer
base and market share. An example is represented by IBMs acquisition of
Lotus Notes.



Growth and Expansion

Many companies combined for different reasons. Some deals cite more
than just one reason and this is quite difficult to determine what the real
objectives of the deals are. Gaughan (2005) indicated that one of the
common goals for a merger or acquisition is relating to growth and
expansion. Growth refers to two types of growth. A growth could be an
expansion in terms of revenue growth or a profitability growth.

A company could either expand through (1) internal expansion or (2)

through mergers and acquisitions. Internal expansion or more commonly
known as organic growth can be slower and presents its own risk. As
compared to the growth via M&A, a company might be able to take
advantage if the company perceives an opportunity to venture into
unexploited market and this is somewhat unachievable through internal

Growth that facilitates the payment of dividend and the maximization of

shareholders value is the goal that should be comprehended by all
managers. The growth through M&A could be one of the fastest ways to
grow but some companies have taken this access for granted. In some
cases, the basic premise is flawed. Growth was not always the best options


to pursue if the company has reached its efficient size, and growing will
make it less efficient.

Gaughan (2005) emphasized that it is better sometimes for the company to

maintain its position rather than to pursue other opportunities that will
generate lower returns than what they could realize if the capital were
released to them in the form of dividends and stock buy-backs.

This is in line with what economists described in the diminishing marginal

return principle. As a company further their expansion, at some point of
growing into another opportunities will simply not yield the return as they
did in the previous state. This may be attributable to the implementation
difficulties faced by the company in integrating the operations of the
functional departments across organizations.


Value creation within M&A

Evans and Bishop (2001) in their book employed that buyers and sellers
can create a lot of value through merger and acquisition. Both can win
from a transaction and that is the beauty of the deal making. Wise
shareholders and managers do not, however, confine their focus on value
to only M&A.


Value creation drives a companys strategic planning and, in the process,

creates focus and direction for the company. The established M&A
strategy support and complement the companys broader goal of building
shareholder value.

One of the most popular headlines against M&A in todays financial

landscape is that, on average, it destroys value rather than creates one.
Even though the statistic of M&A failures is in mounting scale every year,
there are some weaknesses to that claim.

A recent survey by Bolton Consulting Group (2007) indicated that M&A

can destroy value but it also can create value. Between 1992 and 2006,
58.3 percent of the deals destroyed value for the acquirers but the value
destruction argument is based solely on the impact of the deals to
acquirers shareholders and does not take into account the effect to the
targets investors.

In Europe, 47 percent of deals created value, generating an impressive 6.2

percent return for investors on average. In Asia Pacific, the numbers are
even more convincing, in which out of 49 percent of deals that generated
value, and it gives nearly 7.7 percent of return to the investors. On
balance, therefore M&A creates more value than it destroys, with the
targets gaining the lions share of the additional value.


But then again, the obvious disagreement to this claim is that the
acquirers sole responsibility is to generate value for its shareholders not
the targets investor. Statistically, this is true but this is only on average.
Therefore, the value creation process in M&A should not only look on the
value creation of acquirers shareholder but also in total and from the
targets point of view as well.

A company must be able to identify their sustainable potentials for longterm value creation. They need to establish a clear picture of the market
and industry that they involved in, the competitive dynamic, patterns of
value creation and likely changes in the industry structure and also the
perception of investors and competitors of the company performance.

Most acquiring companies focus their attention on bringing the two

entities together as quickly as possible. But the goal should be on value
creation, not just integration, and that integration activities should be
prioritized according to the value they have created. Many companies
organize their integration activities on a functional basis rather than a
value-added basis. Blindly and aggressively integrating various functions
and businesses without regard to a value-creating hierarchy can actually
destroy value (Chanmugam, Shill and Mann (2005), Accenture Outlook,
Vol. 1).




M&A is a mammoth task. Making M&A work is one of the most

challenging life events that many management teams faced in the
company. It requires rigorous and critical processes and every aspects of
the business is much affected by the decision.

Deloitte & Touche Canada (2008) in one recent survey also indicated that
a typical deal goes through the following process or deal flow. Prior to and
during the deal are where value is identified and agreed while integration
is the phase where this value begins to be delivered.

Figure 3: The deal flow of M&A

Similarly, The Malaysian Insurance Institute and Andersen Consulting

(1999) in their book employed that an integrated approach of M&A life
cycle revolves around three major cycles that is pre M&A, during the deal
or negotiation process and post M&A integration. Each cycle demands the


parties involved to focus and establish clear objectives, vision and mission
and determine systematic implementation plans and processes to avoid
another one of many M&A failures.


Pre M&A Stage

Define the corporate strategy

A company needs to know their market value and their place in the
industry before redefine and renew its business directions. A good
grasp of value gap difference between the current value level of
the organization and market expectation, allows the company to
understand the change and market expectation and search for
development efforts to reach the desired objective. Once the
company has decided to choose M&A as the most appropriate type
of partnership, they should set a plan to proceed.

Selecting a target firm

Selecting a target firm to merge or acquire is a similar process of

choosing a new family member. This process should not be taken
lightly as the consequences of the selection will bring long term
effects on the M&A decision. It is a process which demands a


much attention although in reality the company might not have

enough time to evaluate in a short period.

To begin with the selection, an acquirer would need to shortlist

potential firms and preliminary analyze the basic indicators of the
company performances. Upon short listing the potential targets, an
acquirer would need to narrow down the range of selection based
on more specific fundamental terms such as the corporate scale or
the appropriateness of the purchase price.

Due Diligence

After narrowing the list of companies to approach, the acquirer

should compile detail analysis of the product area, geographic,
corporate structure and perform a theoretical analysis that
scrutinize financial and non-financial aspects of the target
company before they could approach them.

Due diligence process comes in after the selection process and this
is a stage where the target company is verified from as many
perspectives as possible. When the due diligence team is
established, the team help to confirm the scope of investigation.
There is no standard guidelines for due diligence but there are a


few critical areas that need to be covered in due diligence process.

The team would need to look at human capital, corporate and
national cultures, organizational structures and also the targets
operation and information system.

Approaching the target

To approach the target company, there are 3 ways of approaching

that is through Direct Approach, Indirect Approach and White
Knight Approach. In direct approach, the acquirer meets the
management of the target company and discuss on the plan to
acquire or merge.

In indirect approach, the acquirer starts the meeting discussing

with management on potential licensing, alliances and then
expanding the discussions to potential merger or acquisition. For
an acquirer that decide to adopt the White Knight approach, they
would continue to perform in-depth due diligence on the target and
only approach until a potential acquirer puts the target company
into play and enabling acquisition to be viewed as a positive option
when the target realizes that they could not stay independent.



Negotiation Process

The negotiation process is the process in which the acquirer meets

the target company to discuss and design a synergistic future and
also to create mutual interaction.

The negotiation process is conducted in a systematic manner,

comprising four stages and begins with a strategy development and
ends with the creation of a mutual agreement. The four stages are
simplified in the diagram below:

Figure 4: Four Stages of Negotiation Process

Develop Negotiation Strategy

Establish Negotiating Team

Conduct Negotiations

Create Joint Memorandum of



During negotiation, both companies have to make agreements with

careful consideration and concentrate on various factors that
should satisfy both parties. In negotiation process, credibility,
patience and persistence are most important. It is difficult to
achieve the goal of an M&A when credibility is missing. It is also
difficult to create the value for the new organization, if the benefits
of an M&A sway in the favor for the new organization.


Post M&A Integration

There was an old saying if you fail to plan, you plan to fail. This
statement is pertinent to the post merger integration plan whereby
the failure to systematically plan the post M&A integration process
would spells catastrophe to the organization. The post M&A
integration plan is the crucial stage in which it helps to ensure that
the ultimate goals of the M&A activity are met by capitalizing on
positive synergies and streamlining organizations and processes.
The post M&A integration plan or PMI is a value creating process
that when done right should deliver positive results to the whole

The PMI activities depend on the organization and nowadays there

are many PMI tools available to help them go through this stage.


Integration must be treated as a continuous process and should not

be seen as an isolated function. The coordination process should
cover the different corporate cultures, operational processes,
organizational structures and the capability of adjusting to change.

The common practice of PMI includes vision setting of the new

entity, modeling capabilities and processes, operation integration
and stabilization plan and also managing human resource
integration. These are common practices suggested by The
Malaysian Insurance Institute and Andersen Consulting (1999).

Vision Setting

Post M&A integration plan requires the management to

establish a new vision and mission for the company and
clearly indicate the new goal for moving forward. The new
shared vision is vital as a guiding post for the employees
and other stakeholders in bringing about the change. With
well articulated shared visions, members of the newly
combined entity can better understand desired future states
and strategic priorities. It could be a guide to stimulate new
behaviors and performance and day to day decision making
guidance for the management.


The objectives should be determined according to the core

functional activities of the organization. This will help the
employees to better understand the needs for the change
and prepare themselves for the new development.

Modeling Capabilities and Processes

It is very important for the management to understand core

capabilities and processes in order to lead the new
organization based on the objectives and vision established
earlier. Core capabilities are sets of processes that the new
organization must engage in supremely well to deliver
competitively superior value to customers.

Besides that, the company must also establish its core

processes which refer to the cross functional workflow
through which value is delivered to customers. This core
capabilities and processes modeling suggest ways to
effectively operate the newly integrated entity while
eliminating unnecessary and redundant tasks.


Operation Integration and Stabilization Plan

Operation integration planning is the systematic, detailed

evaluation of both entities strength and weaknesses
identified during the capability and processes modeling.
The goal of the integration planning is to begin creating the
optimal Business Model for the future success of the new
organization. The operation integration plans covers all the
activities which the new organization continuously deals
with and sustain the core values that are essential for the
ongoing life of the business.

Managing Culture and Human Resource

With the new change that the management brings to the

newly combined organization, the management will need to
manage the different cultures, behaviors and values among
the employees in the organization. Therefore, a systematic
human resource model needs to be in place. The
management will need to make decision such as providing
training and education and employee transition process.


Integration of Other Functional Activities

Other than operations and human resources, there are a few

other functional activities that also need to be integrated in
this stage. Other functional activities such as information
system and finance should also be integrated according to
the objectives and business model that was established

Any integration model should be a modifiable model,

depending upon changes of technologies, market and the
business environment. Therefore the new organization
should continuously rearrange and make up for the new
issues, including benchmarking for technology standard,
observation of the market change and financial problems.
These are some of the PMI key plan highlighted by
Andersen Consulting and MII (1999).





One of the most difficult tasks in this takeover is the integration process and the
challenges that await ASNB in each stage of the takeover. Integrating two
separate entities, ASNB and AMB with different backgrounds, cultures and
systems into a single working unit is never an easy task to complete. It is often
proven to be time consuming and difficult. The process of integration requires
ASNB to cautiously plan the right framework and implementation program in
order to grow further and get the objective fulfilled. Therefore, this study is
planned to address the following research questions;-

i. Identify factors that motivate ASNB to grow via takeover strategy.

ii. Examine what actually happened during the whole takeover process.
iii. Determine how synergistic value is created through the takeover.
iv. Investigate the impact of the integration strategies on the outcomes of the
v. Identify the relationship between the synergistic value and post-takeover
performance of the bidder and the target comparative to the pre-takeover
vi. Explore how the takeover can lead to value creation.




The research may touch upon several issues sensitive to the decision makers
within ASNB. The study faced limitations in terms of assessing into information
sensitive to the company, not willingly shared and permitted to be disclosed by
the management.

This study is confined to the comparisons of valuations based on best practices

with the takeover price paid by ASNB. The comparison of premium or discount
as against the actual amount paid by the acquirer, ASNB, depicts the value of the
takeover. Since both the acquirer, ASNB and the target, AMB, are unlisted, it is
not possible to determine value as reflection of market confidence or acceptance
towards the takeover.

The confidence level of the existing unitholders and potential investors of AMB
were not examined in this study. However, comments would be made based on
the observation and assessment of the redemption and subscription rates of
AMBs unit trusts products before and after the takeover.





Data Collection and Sampling

The collection of data is done through the interviews with the senior
management of ASNB and AMB as well as relevant employees involved
in the takeover process. A set of interviews questionnaires is as illustrated
in the Appendix 1.

The senior managements involved in the interview are the Executive

Director of ASNB and Head of the Unit Trust Division, Head of Accounts
of ASNB, Head of Accounts of AMB, the Manager heading the takeover
initiative from the Office of President and Group Chief Executive Officer
(GCEO) of PNB and middle and junior managers involved in the process.

The interview with the senior management aims at gaining insight into the
rationale and motivation behind the takeover initiatives. The interviews
with the middle and junior managers pertinent to the takeover process
provides understanding of the flow of the process, in-depth analysis
directing towards the decision making and the implementation process
after the takeover across all relevant functional departments in the


Financial reports of both, ASNB and AMB, are obtained from the Heads
of Accounts of the respective company with permission from the Head of
Accounts for the PNB Group. The financial reports comprises statement
of income, balance sheet and statement of cash flow are the main
secondary sources of financial data supporting this research.


Methods of Valuation

Some literatures cited that to measure a takeover performance, a

researcher should look into two types of performance measurement, by
using accounting data and market-based.

Since both companies are not listed, historical accounting data are used as
the bases to project five years forward into the future using DCF valuation
in the assessment of the premium or discount of the takeover value as
against the takeover price paid.

Determination of the creation of value post-takeover is based on the

interpretation of the key performance ratios as reflected in the financial
statements of the combined entity.






A unit trust fund is a collective investment scheme where money from many
investors is pooled together for collective investments and is invested towards a
specified goal as stated in the investment objective of the fund.

A unit trust scheme can be illustrated as a tripartite relationship between the

manager, the trustee and the unitholders. This tripartite relationship is governed
by a deed registered with the Securities Commission (SC). The manager of the
fund is responsible for the management and operations of the trust fund,
distribution of income and computation of unit prices. The trustee is appointed to
act as the custodian for all the assets of the fund and to ensure that the manager
adheres strictly to the provisions of the deed.

The unit trust industry is governed and regulated by the SC, with the Act and the
Guidelines. The SC is empowered to ensure compliance with the Act and the
Guidelines. The Act and the Guidelines govern the operations and administration
of unit trust funds and protect the interests of unitholders. All parties involved in a
unit trust scheme must comply with the Act and Guidelines including all relevant


A unit trust fund is also governed by a deed of the fund. The deed incorporates the
covenants required by the Act and the Guidelines. The deed is a legal document
that spells out in detail the manner in which the scheme is to be administered, the
valuation and pricing of units, the keeping of proper accounts and records, the
collection and distribution of income, the rights of the unitholders, the duties and
responsibilities of the manager and trustee with regards to the operations of the
scheme, and the protection of unitholders interests.

The appointment of the trustee, the directors and chief executive officer of the
manager, investment committee members, syariah committee members, panel of
advisors and external investment manager of the fund must receive the approval
from SC. The diagram below explains the concept of unit trusts fund.

Figure 5: The Unit Trust Concept





Permitted Investments of the Fund

Possible Capital Gains and Distribution of Income

Source: AMB Master Prospectus




The unit trusts concept was introduced in Malaysia in 1959.

However, the

industry faced slow growth for three decades and uncertainty in the regulatory
environment did more to hinder the industrys growth than to support its
development. The pace of growth picked up in the 1990s registering its fastest
growth in both the number of new companies established and assets under

The centralization of industry regulation through the introduction of the SC in

March 1993, leading to the implementation of the SC Regulation (Unit Trust
Scheme) in 1996 were among the key drivers in making unit trusts widely known
in Malaysia.


The Market

By 31 December 2007, there were 38 Unit Trust Management Companies

(UTMCs) in Malaysia operating in the unit trusts industry, offering unit
trusts products to the public. One of the prominent market participants in
this industry is ASNB. ASNB in their initial stage had introduced two
products, Sekim Amanah Saham Nasional (ASN - National Trust Scheme)
and Skim Amanah Saham Bumiputera (ASB Bumiputera Trust Scheme)
which has helped the industry to grow further. ASNB has been in the
industry for close to 30 years, since its inception in 1979 and they have


been the market leader in terms of assets under management that stands at
more than 50% (at more than RM75 billion) of total Net Asset Values
(NAV) of the Malaysian unit trusts industry, worth about RM175.4 billion
in 2007. The industry details encompassing the size of the industry in
terms of number of funds available, Approved Fund Size (AFS), total
Units in Circulation (UIC), Net Asset Value (NAV) and market
capitalization (Mcap) comparative to the Kuala Lumpur Composite Index
(KLCI) of Bursa Malaysia are as illustrated in Table 1.0 below.

Table 1: Unit Trusts Industry Statistics

Source: Lipper, Bursa Malaysia


Market Growth

In 2007, the local unit trusts industry was expanding at the steepest pace
since 1994, reflected by the growth of its key indicators, namely the AFS,
UIC and NAV. AFS grew 37.9% or an extra 119.4 billion units to 434.5


billion units from 2006. UIC, on the other hand increased 41.3% or 62.4
billion units to 213.4 billion during the same period. NAV recorded the
fastest pace among the three indicators, up 47.6% or RM56.5 billion to
RM175.4 billion from RM118.9 billion in 2006.

Figure 2.0 clearly

illustrated the upward trend of the industry for the past few years.

Figure 6: Unit Trusts Industry Trends

Source: Lipper

The rapid growth was mostly supported by the record number of new
funds launched of 117 in 2007 compared with only 67 new funds in 2006.
The government allowance of larger percentage of total assets for offshore
investments from 30% to 50% was also a boost to the supply side industry.
This move provided more rooms for UTMCs to diversify their product
range to better serve investors investment styles.


The rate of subscription of the industry however, improved marginally to

49.1% in 2007 from 47.9% in 2006.

The stronger capital market

performance resulting in better NAV performance that led to higher unit

trusts prices could be the reason underpinning investors selling or waiting
for price drops before plunging into unit trusts investments. This indicates
the calling for efficient marketing strategies on the supply side to attract
investors towards their unit trusts products.

Figure 7: Industry Subscription Rate versus NAV

Source: Lipper


Market Trends

The indication of trends in which fund types are gaining popularity with
investors can be seen in the new funds launched during a particular year.
Figure 3.0 showcases the types of unit trusts launched in 2007. In 2007,
equity offshore was the most popular category of funds being launched,
with a total of 42 funds. The sudden interest in launching global and
offshore funds was due to Bank Negaras decision to relax the institutional


investment rules at the beginning of the year. Moving forward, global

funds will still be in trend with the Malaysian unit trusts industry,
especially in the light of market liberalization and globalization in the
financial and capital market.

Figure 8: New Funds Launched by Types

Source: Lipper

Other categories of funds gaining popularity with most investors are

money markets and guaranteed funds. Higher market volatility today, is
inducing investors to switch to lower risk funds. Together with a possible
tightening in the credit markets, may trigger UTMCs to provide defensive
products to cater for investors with lower risk appetite.

Islamic or Syariah complied products is also getting sought after by most

investors. The making of Malaysia as an Islamic Hub, could also be a


driver to Islamic unit trusts demands moving forward.

Through the

governments Budget 2008, a special tax rebate has been introduced for
both Islamic funds and Islamic UTMCs.


Market Demographics

The offerings of unit trust products to one market segment from another
must differ in accordance with the investment objective and risk tolerance
of consumers in each segment, which varies with age groups. Analysis of
the Malaysian population (translated into graphical illustration in Figure
4.0) indicates that the working group, aged between 25 and 54 years old
make up the majority at about 39.3% of the population and is growing at
an average of 2% to 3% per annum. The aging population is seeing the
increase in the retiring population (retiree group) at an average of 4% to
5% growth per annum.


Figure 9: Forecast of Malaysian Population


























The needs for

retirement plan

Increase in working
population means
that economy needs
more saving and




25 - 54

55 +

Source: ASNB

It is obvious that both, the working group and the retiree group, are
growing in size, while the student group (aged between 10 and 24 years
old) and the minors (aged 9 and below) are reducing in size moving
forward. The investment decision for the student and minor groups would
normally be the parents who are in the working group. The investment
needs of the four groups or segments differ. The eligible investors to
UTMCs would be the working population and the retirees.




Amanah Saham Nasional Berhad (ASNB), a wholly-owned subsidiary of

Permodalan Nasional Berhad (PNB) was incorporated on 22 May 1979, as part of
the governments objective under the New Economic Policy (NEP) to promote
equity ownership in the corporate sector among the Bumiputera of Malaysia. It
also aims to develop opportunities for potential Bumiputera professionals to
participate in the creation and management of wealth.

Over 30 years in existence, ASNB has been a successful special vehicle of the
government to pool funds from the Malaysian individuals through its unit trust
products. These pooled funds are being mobilized into performing corporate
sectors through investments into sound private and public listed companies.

Participation of individuals through the purchases of unit trust products offered by

ASNB has enabled more than 8.6 million people of Malaysia of all races to own
indirect equities of several good companies in Malaysia, both listed and unlisted,
with tolerable risk exposure. The diversified investment portfolios of the unit
trust funds under the management of its holding company, PNB, ensure low
calculated risk of the unit trust investments. Direct equity ownership may be
expensive to the majority of individuals and at the same time projects higher risk


The investment model and approach adopted by ASNB have been able to
cultivate savings habits among Malaysian especially Bumiputera, while at the
same time educating society at large of the importance of long term investments
for the future.

ASNB has consistently paid-out competitive returns in terms of income

distributions to all its unitholders through the boom and bust years during its
existence. To-date it has distributed more than RM56.0 billion dividends and
bonuses to more than 8.6 million unitholders.

Through the incorporation of

ASNB, Malaysia has seen improvements in the living standard of the Bumiputera
across the country.



ASNB, in line with the mission of PNB, strives to enhance the economic wealth
of Malaysians, in particular, the Bumiputera community and simultaneously
contributes towards the growth and prosperity of the nation for the benefit of the
society as a whole.

The company envisioned to be a premier unit trust organization of the world class,
providing distinctive services to its unitholders, customers and potential investors.
The company inculcates a set of values that reflect the rich tradition and


dedication to excellence within the organization, which the employees embrace

and uphold at all times.



The product offerings of ASNB are only catered for the retail unit trust segment
that is the public at large. During the early years since its inception, ASNB only
opened unit trust subscription for the Bumiputera public. This was in tandem
with its original objective of set up that is the mobilization of funds and creation
of equitable wealth distribution among the Bumiputera through participation in
unit trusts. The mass customization, production and advertising of the unit trust
products of ASNB cannot be sold to the institutional or corporate market

The company offers eight unit trust products, which are categorized into 10 funds
consisting four fix-priced funds (priced at RM1.00 a unit fixed) and six variablepriced funds (price varies with the performance of Net Asset Value of each fund).
ASNB until today has continued to maintain its leading position in the unit trust
management industry, comprises 416 unit trust funds, controlling more than 40%
of the total units in circulation (UIC) of about RM151 billion. The product
information details are as presented in Table 2.


Table 2: ASNB Product Information





UIC as at



Year End

Fund Size






Fixed-priced Funds

2 Jan., 1990

ASW 2020



31 Dec.


53.52 billion

10 units

Aug., 31 Aug.

7.35 billion

5.12 billion

100 units


Apr., 31 Mar.

7.70 billion

5.28 billion

100 units


Apr., 30 Jun.

3.00 billion

1.58 billion

100 units

Apr., 31 Dec.

2.50 billion

1.49 billion

10 units

2.50 billion


1,000 units

Variable-priced Funds



9 Jun., 1999


16 Oct., 2001 30 Nov.

1.00 billion

90.72 million

100 units



Mar., 31 Mar.

100 units



Mar., 31 Mar.



Mar., 31 Mar.

bil. 31.88 million
24.86 million
for all the
three funds
under the 24.90 million

30 Jun.

100 units
100 units

Source: Company, Master Prospectus

Note: * Through investment book.





Distribution Channel

ASNB operates through physical offices of its own outlets and the
networks of its four Agents, enabling performance of over-the-counter
(OTC) transactions, communications and provision of services.


Agents of ASNB comprise the three major local banks in Malaysia,

Malayan Banking Berhad (MBB), CIMB Bank Berhad (CIMB) and RHB
Bank Berhad (RHB), and the national postal service provider, Pos
Malaysia Berhad (PMB).

Most of the revenue generating business activities of ASNB is performed

over the counters of Agents and ASNB Offices allocated all across

There are more than 1,500 networks of Agents, widely

dispersed geographically, providing ASNB with massive coverage and

contacts with its customers and prospects. The number of Agents
Network is tabulated in the Table 3 below.

In addition, there are 19 Offices of ASNB, inclusive of the Main Counter

Office at the Kuala Lumpur Head Quarters (HQ), which are strategically
located in each state reaching out directly to customers for


communications and services.

The geographical locations of ASNB

Offices in Malaysia are as illustrated in Figure 10.

Table 3: Number of Agents Networks


Branches in W.P and KL

Total Branches
















Source: Company, ASNB, as at 31 December, 2007

Figure 10: ASNB Offices Nationwide

Kota Bharu

Kota Kinabalu

Alor Star





Shah Alam
Sri Aman


Johor Bahru

Source: Company, ASNB


The major portions of sales to the company are generated via OTC
transactions of the agency networks and its own service outlets. A small
proportion of sales are sought through personalized services of its sales
executives, especially those unit trust purchases by customers and
prospects coming from the Employee Provident Funds (EPF) savings. At
present, ASNB has about less than 40 sales personnel providing
personalized service to customers across the nation.


Distribution Fee

The Agents of ASNB basically function only as transactional or collection

agents, with no incentive to perform persuasive marketing to induce
customers or prospects to increase their unit trust purchases. The agents
therefore receive distribution fees commensurate with the value of
transactions performed. The sales commission for sales and repurchases
or redemptions transaction ranges from 0.10% to 0.35% of the transaction

Other non-monetary transactions, namely, switching between funds,

change of investment books, change of address, name or identification
card (IC) number and various other non-sales generating activities will
receive a flat RM0.50 commission per transaction.



Sales Incentive

Different from the sales people of other UTMCs, the sales personnel of
ASNB receive a fixed monthly salary commensurate with their seniority
and experience levels. Although they do not receive sales commissions on
top of the fixed monthly pay, the high flyers among the sales people will
receive performance bonuses and other incentives (for instance overseas
trips) significant enough to motivate and differentiate them from the nonperformer.


Breakdown of Management and Services Fee

The sources of income to ASNB from the unit trust sales and assets
management business are coming from management fees (about 97% to
98%), initial service charges (ISC) (about 1.0% to 1.6%) and other fee
income (about 1.4% to 1.8%).

The 97% to 98% contribution to total revenues is coming from the

management fees for the management of the 10 funds chargeable to PNB
as the Fund Manager. The chargeable fee for each fund ranges from
0.35% to 1.50% in accordance to the respective Deed of the fund.


The ISC which is chargeable to the investors upon purchases of units of

the selected funds is 5.0% of the net asset value per unit of the funds. The
ISC of ASNB is comparable to those charged by other UTMC ranges from
5.0% to 6.95%.

Table 4: Malaysian Unit Trusts Fees

Fund Type

Sales Charge

Management Fees


5.00% - 6.50%

Around 1.50%


0.00% - 6.50%

0.40% - 1.50%


1.65% - 6.50%

1.50% - 1.80%


0.00% - 2.04%

0.75% - 1.50%


0.75% - 6.50%

1.00% - 1.50%

Money Market

0.00% - 1.00%

0.38% - 1.00%


0.00% - 6.95%

0.30% - 1.80%

Source: Cerulli Associates, 2006


Human Capital Strength

As at 31 December, 2007, the total strength of ASNB in terms of human

capital stood around 390 people supporting and contributing to the daily
business activities of ASNB nationwide.






Firms must have a business growth strategy. (Bendaniel and Rosenbloom, 1998)
The main reason underpinning the takeover initiative of ASNB was to grow not
only in size, but also revenues, profitability, productivity, capabilities, skills and
expertise in its business operations and core competencies building.


motivations leading to ASNB jumping into the M&A and takeover bandwagon
are as follows:-


Business Expansion

There are various reasons for an organization looking towards M&A and
takeover when strategizing for corporate growth. Organic growth through
internal accumulation of assets and reserves takes longer time when
compared with growing through M&A. The major objective for the lateral
or horizontal integration and takeover of AMB by ASNB is to expand and
grow the existing size, assets and business of the company.



Usage Gap - New Market Penetration

ASNB was set up by the government under the Yayasan Pelaburan

Bumiputera (YPB) as a government vehicle to ensure distributive justice
among the Bumiputera in terms of wealth accumulation and redistribution.
The company was entrusted with a major role to ensure that pooled money
among the public is efficiently mobilized into various important sectors in
the country to generate sufficient returns that could be distributed back to
the society. As such, the unit trust products of ASNB are designed for the
mass retail market, meant only for the retail public.

As the business environment and regulatory framework change, ASNB

realizes the usage gap posted by restricted market penetration across
various segments that is faced by the company.

Today and moving

forward, ASNB cannot strictly depend only on the retail market segment
to ensure survival long into the future. The company must strike a balance
between meeting the social objective and its commercial business needs.

ASNB is looking at penetrating into new market that could be

complemented through integration with another UTMC that is having
exposure in wider market segments, tapping money from institutions,
corporations, and other target segments not readily available to ASNB.
Exposure to various market segments and the new market penetration


would also enable ASNB to better position itself in the unit trust industry
to compete with the increasingly intense competition coming from the
market rivals, especially in the light of market liberalization and


Product Gap - Better Product Design and Offer

The liberalization of the banking and financial services industry is now

seeing many foreign institutions, banks and fund management companies
coming into Malaysia. These foreign banks and institutions offer various
financial products including unit trusts to the Malaysian society.

While the consumers are pampered with and spoilt for selections over the
larger spreads of financial products, the share for sales volume is getting
smaller for market players and profit margin is thinning due to increasing

In order to keep abreast with the market evolution, the

takeover strategy seems fit for ASNB to move quickly in terms of product
offerings and design, overcoming the product gap of the company.

It is hoped that integration with another UTMC with complementing

skills, expertise and technology would contribute towards better product
development and design. The company would thus better able to offer
more product choices to satisfy the increasingly affluent investors that


demand for sophisticated investment products with better promising

returns at tolerable risk exposure.


Distribution Gap - Economies of Scale and Scope

ASNB strongly believed that synergistic value could be achieved through

the full exploitation of complementary expertise, technologies, distribution
networks and human capabilities from the merged entities operating in a
similar business stream.

Synergy is the magic force that allows for

enhanced cost efficiencies of the new business and it takes the form of
revenue enhancement and cost savings.

The synergy effect of this related integration is expected to lead to

economies of scale and scope derived from the operational efficiency
coming from efficient combination of similar operational functions and
distribution channels, saving costs and resources all along the value

The distribution gap analysis of the company clearly reveals the need for
more than just the physical banking agency networks performing the OTC
transactions and functioning merely as collection centers with no
motivations to adopt some pushing strategy to boost sales for ASNB.
Figure 11 illustrates the distribution channels of the mutual fund industry


world wide, and the blue-colored balloon depicts the channels in existence
for ASNB.

Figure 11: The Distribution Channel of the Mutual Fund Industry



Direct/ Retail
Non-personal accounts
held by trusts, corporations,
financial institutions,
nonprofit businesses,
and other organizations

Discount brokers offer a

large number of funds
from a broad array of





Employers sponsoring
defined contribution plans
select a limited number of
funds for participants


Plan Channel


Financial Advisers


International industry

Source: Company, ASNB


Competitive Gap - Improve Image and Brand Reputation

Analysis of the competitive gap indicated that the strength of ASNB lies
with its fix-priced or capital-protected unit trust products. The consistent
competitive annual payouts to unitholders are pulling crowds to ASNB
whenever new additional units in the fix-priced segment are opened to the


The company is however far from reaching brand reputation in the

variable-priced product segment even though the total returns that could
be generated from ASNB variable-priced products are comparable to those
of its competitors. Although the performance of some of ASNBs
variable-priced products were comparable to its competitors in terms of
sustainable NAV above its par and consistency in dividend payouts
through the bear and bull markets, the company failed to attract investors
in this segment.

In order to attract more investors and prospects towards its variable-priced

unit trust products, ASNB hopes to build brand awareness in the variablepriced product segment through the integration with company having fair
image in this segment. A favorable integration should provide opportunity
for better image building and brand reputation across products and market
segments moving forward.



The identification and realization of the needs to grow in size, expand business
opportunities, enhance and maintain competitiveness of ASNB had initiated the
company to look into M&A as part of its corporate growth strategy.


importance for ASNB to grow was shared among the management and boards,
which everyone agreed that size matter in order to better able to weather rapid


changes in the marketplace.

ASNB can no longer operate on an ad-hoc

reactionary basis to ward violent fluctuation in revenues and profits over the long

This effort was also in line with the objective and initiative of its principal holding
company, Permodalan Nasional Berhad, PNB, to restructure many of the groups
business activities in various industries through its subsidiaries, including the unit
trust business.

The initialization of ASNBs need to grow via M&A has called for the screening
for, evaluation and selection of potential targets to arrive at the possibly the most
suitable suitor for the company. ASNB is of the view that the corporate strategy
was very important to the company that everyone relevant in the strategic
planning should be involved in the process. The company thus decided to
undertake a crucial analysis comprises the screening, evaluation and selection
processes in-house.


Screening For Potential Target

ASNB first hoped to gain competitive advantage through an integration

and takeover of companies in the related or similar business that is unit
trust management. The companys strength in unit trust management had
been recognized and acknowledged by most public that ASNB was


conferred 2007 Most Trusted Local Brand Award is evidenced by the

Readers Digest last year. For the last close to 30 years in existence, ASNB
has never failed to distribute income to its unitholders.

The company was looking into a lateral or horizontal integration where the
consolidation of similar functions along the business value chain activities
would enhance efficiency and productivity of the company. The screening
for the potential suitor for ASNB started with the scanning of a number of
local unit trust management companies (UTMCs), carrying out similar
businesses within PNB group of companies.

The potential target encompassed UTMCs with strong fundamental to

succeed but lacking capabilities in unit trust and asset management as
reflected in the price performances of their unit trust products. The initial
screening of UTMCs within the PNB group directed the company towards
two companies, the AMB and Asia Unit Trust Berhad (AUTB). AMB was
a wholly-owned subsidiary of Malayan Banking Berhad (MBB) and
AUTB is the subsidiary of Malaysian Industrial Development Finance
Berhad (MIDF).



Evaluation Of Target

The evaluation of the two targets started with comparative analysis of the
targets as against ASNB, outweighing the advantages of the takeover and
assessing how each target could actually complement and contribute to the
benefits of ASNB as whole post takeover. The results and findings of the
analysis, including relevant recommendations based on the findings were
later presented to the Board of Directors of both, PNB and ASNB for
direction and approval.

Comparative Analysis

At the initial stage of the evaluation, the general attractiveness of

the two targets was compared with that of ASNB. In Table 5 the
general overview of the companies product lines, size in term of
UIC and NAV, the fund managers managing the assets under each
UTMC and the market share of each were evaluated.


comparative evaluation of the business models compositions of the

UTMCs were made against ASNB in Table 6 and Figure 12
exhibited the equity and operational structure of ASNB in
comparison to AMB and AUTB before the takeover.


Table 5: General Overview of Product Lines and Size







No. of funds
Fund Types

Growth, Income & Growth, Income & Growth, Income &


Balance Growth,

and Income.


Balance, Growth,


Income, Bond, Small-cap.



UIC (unit)
Fund Manager

51.54 billion

4.78 billion

0.516 billion

RM 51.3 billion

RM 2.57 billion

RM 0.281 billion


Mayban Investment, Amanah



and Asset Management

Hwang-DBS Asset
Market Share

UIC: 39.2%

UIC: 3.6%

UIC: 0.4%

NAV: 53.6%

NAV: 2.7%

NAV: 0.3%

Source: ASNB, figure during due diligence in 2005


Table 6: Business Model Comparisons

Business Model





ASNB Offices and MBBs network of Individual


network of Agents: Offices


MBB, CIMB, RHB, executives



sales International


all Trust Agents (IUTA),





Channel Size

More than 1,600



400 About 400 individual


agents, 4 IUTA via




Standard Chartered
Distribution Fee

Based on value of Based


sales Based

transaction ranging performance

from 0.1% to 0.5%





ranging from 3% to from 3% to 4% of ISC

4% of ISC

Sales Incentive



executives Individual


sales receive

incentives similar to based

Fee Breakdown



individual agents


97% Mgt fee,

40% Mgt fee,

60% Mgt fee,

1.2% ISC,

58% ISC,

30% ISC,

1.8% others

2% others

10% others





Staff Size




UIC per Staff

135 million

114 million

14 million

NAV per Staff

RM134 million

RM61 million

RM7.8 million

Source: ASNB, figure during due diligence in 2005


Figure 12: Equity and Operational Structure of ASNB, AMB and AUTB







10 unit

17 unit

6 unit trusts

Distribution Channels


Distribution Channels


Distribution Channels

Branches and

Bank Islam,

Source: PNB


Advantages of the Takeover

Specialization of Producer and Distributor Functions

Both AMB and AUTB acted as distributors to third party unit trust
products apart from producing and distributing their own in-house
unit trust products. AMB for instance, had an agreement with
Pheim Unit Trusts Berhad and Hwang DBS Unit Trusts Berhad to


distribute their unit trust products to the public in the marketplace.

AUTB on another instance had been distributing the products of
third parties namely HSBC Bank Malaysia Berhad (HSBC),
OCBC Bank (Malaysia) Berhad (OCBC) and Standard Chartered
Bank Malaysia Berhad, in the unit trusts market for years.

The takeover would be an advantage to ASNB through the

specialization of producer and distributor functions.


ASNB is designing and producing its own unit trusts products, the
collaboration with AMB or AUTB provides ground for ready
massive distribution of companys products to mass market. The
specialization also enables cross-selling of products between the
ready clientele base of AMB or AUTB and ASNB. ASNB would
not only sell its products through physical offices of agents but
also, through the individual unit trust agents (IUTA) of AMB or


Focus Sales, Marketing and Distribution

Apart from the other three agents, CIMB, RHB and PMB, the unit
trusts products of ASNB were very much dependent on the MBB
branch offices for mass sales and distributions. While MBB was
responsible for the sales, marketing and distributions activities for


the unit trust products of ASNB, the sales executives or the

individual agents of MBB were more motivated to sell the unit
trusts products of AMB along with other insurance, takaful,
mortgage, loans and credit cards products of MBB.

It is expected that by taking over and integrating AMB with

ASNB, better concentration on and motivation for selling and
marketing ASNB unit trusts products by the sales executives of
MBB can be achieved. While previously the sales executives of
MBB faced conflict in promoting the products of ASNB, with the
integration, they are better focus to sell and promote the various
unit trusts products of both ASNB and MBB interchangeably
without conflict.

As in the case of AUTB, the takeover would see the utilization of

several distribution channels via the individual agents and IUTA,
complementing the existing mass distribution of ASNB via
physical offices of ASNB and its agents.

Better personalized

services provided by the sales executives, individual agents and

IUTA of both AMB and AUTB would be expected to result from
the takeover.



Production of Innovative Products

The majority of 10 funds of ASNB were in the category of income,

growth, income and growth and balance funds. The takeover of
AMB and AUTB would enable ASNB to offer more unit trusts
products especially in the variable-priced category, which includes
Islamic, Index, Bonds, Small Cap and Cash Market unit trusts
products. This would enhance ASNBs product portfolio from 10
products to 33 products, attributed by 6 products from AUTB and
another 17 products from AMB.


Efficient and Effective Services

The takeover would also reduce the operational redundancy and

streamline the unit trusts business activities in the PNB group,
which indirectly provides an opportunity for ASNB to gain the
expertise in the resource planning for new product development.


Wider Market Capitalization

The takeover of AUTB and AMB would also increase ASNBs

market capitalization in terms of UIC and NAV in the unit trusts
industry. The takeover would enable ASNB to increase its UIC in


the industry from 39.2% (51.54 billion units) to 43.2% (56.84

billion units) and also increase in NAV from 53.6% (RM 51.3
billion) to 56.6% (54.15 billion) in December 2005.


Economies of Scale and Competitive Advantage

With the expectation of a more liberalized market in future, the

takeover would continue to further maintain ASNBs objective to
exploit the economies of scale and enhance its competitiveness in
the financial sector. As the strength of ASNBs unit trusts product
lies in its competitive price, the takeover would be the best
platform for ASNB to offer more diversified products and services
within its competitive fee structures. The following table shows the
structure of the fees charged on its respective products:


Table 7: ASNB Products Fee Structure

Unit Trust Fund

Service Fee

Operating Fees

Expense Ratio














5% - 8%




3% - 8%




3% - 8%



ASG- Education

3% - 8%



ASG Health

3% - 8%



ASG Retirement

3% - 8%



Average as at 2004

The ASB unit trusts fund represents nearly 82% of NAV of ASNB
unit trusts funds. There is no service activation fees charged for
any subscription and the management expense ratio (MER) is very
competitive, indicating the least frictions or transaction costs of
owning units of ASB in the market. Since ASB does not have any
service activation fees, the total transaction costs for 2004
comprised only 0.36% of the MER, in which 0.34% mainly came
from the management fees.

As reported by the Fortunes


Magazine in February 2004, MER for ASB was much lower than
the average of MER for unit trusts products in the United States
whereby the average was 1.5%.

In order for ASNB to be more competitively focus in the variablepriced products segment, exploitation of economies of scale as
what they have managed to achieve in the fix-priced products
segment is very important. The management foresees that this
takeover would be able to increase the NAV for the variable-priced
unit trusts products of ASNB from RM 1.7 billion to RM 4.5

Therefore, the existing economies of scales could be

extended to the variable-priced products segment and would

continuously be fully exploited to allow ASNB to reduce its
business operating margin.

Consequently, with an optimal

operational volume and cost the company would be in a better

position to compete in the market place in the future.

The unit trusts industry as part of the investment products market

is dynamic and the ever growing technological advancement to
facilitate information sharing about the products in the market, the
unit trusts industry is expected to rise to these challenges.
Business players must be able to provide competitive returns than
other investment instruments in the financial market. Hence, one


of the ways for ASNB to compete effectively and look attractive to

investors is to offer unit trust products with an effective cost in
terms of fees and other transactional costs chargeable to the

This is paramount given the more affluent investors of today,

which are knowledgeable and often carry out information research
on their own prior to making their investment decision. With the
low transaction cost, the investors would be able to enjoy a better
return from their investment. With this takeover, ASNB is also
expected to maintain its competitive fee structure while exploiting
the economies of scale in managing a bigger scale of unit trusts
products in the future.


Optimization of PNBs Asset Management Expertise

The management of funds of ASNB is carried out by PNB under

the Investment Management Agreement (IMA) between the two
companies. The fund managers of PNB have had vast experience
and over 20 years of good track record in the fund management
since 1978. PNB is currently the largest equity fund manager in


The proven fund management and investment process adopted by

PNB would be a good platform for both, PNB as the fund manager
and ASNB as the product distributor, to grow further upon this
takeover. Moreover, PNB owns a diversity of skillful professionals
in terms of human resources in the respective areas that could play
bigger roles in the takeover and contribute towards a better
performance of the target post-takeover.

(viii) Accessibility to AMB Clients Database

AMB owns a Clients Database that retains comprehensive

information on the unit trusts clients which includes the
institutional, higher net worth and non-Bumiputera clients. Thus,
with this strength and capability, it could provide an opportunity to
ASNB to market the variable-priced unit trusts products into a
wider market segments. It is hoped that ASNB would be able to
cross-sell products to the clients of both ASNB and AMB and
increase their shares of wallet.



Capitalization of AMB System

This takeover would provide the management of ASNB an access

and insight into the unit trust system backing the daily operations
of AMB, the International Unit Trusts System (IUTS) and compare
its capabilities with ASNBs Unit Trusts System (UTS).
Streamlining and integration of the systems post-takeover would
facilitate transfer of knowledge, expertise and technology for better
system support in terms of product innovation and development in
future. The capitalization of better system and technology would
enhance the features of unit trusts products of ASNB in the market
place moving forward.


International Market Exposure

This takeover would provide a better platform for ASNB and PNB
group to collaborate with MBB for any future plan to launch
international unit trusts funds through MBBs wider networks
abroad. At the moment, PNB markets its international unit trust
products through Singapore Unit Trusts Limited (SUTL) while
MBB operates its branches in Singapore, Brunei, China, Hong
Kong, Vietnam, United Kingdom, United States, Cambodia and
Bahrain. Therefore, in view of the broader international exposure


of MBB, it is hoped that the takeover would enhance collaboration

efforts with MBB and thus provides pathways for both ASNB and
PNB to achieve wider international exposure in future.

Takeover Implications To PNB Group Profits

Both, principal holders of the targets, MBB (the principal holder of

MUTB before the takeover) and MIDF (the principal holder of
AUTB), are subsidiaries of PNB. The shares of profits from both
companies are consolidated into PNB Group annual accounts. The
takeover would have implication to the shares of profits to be
consolidated in PNB Group accounts that need assessment to be
made at that stage.



On average, for the last five years to 2005 (prior to the takeover),
AMB had been contributing about RM10.74 million after tax
profits to MBB.

In turn, that could be translated into

approximately more than RM5.0 million profits contribution to the

PNB Group annually (assuming an average strategic stake of more
than 50% in MBB). The takeover and integration of AMB with


ASNB would see a reduction in MBBs contribution to PNB

Group accounts.

However, the reduction in the share of profits from MBB would be

expected to be replaced with higher distribution fees from ASNB
coming from the merged 27 unit trust funds of ASNB (10 funds)
and AMB (17 funds). MBB on the other hand, could expect higher
fee income on the back of higher transactions on the performance
of more sales and cross-selling of more products by acting as the
distribution agent of ASNB.

It was also projected that MBB could generate 15% new unit trusts
sales for the variable-priced products segment of ASNB for the
next five years from 2005 on an annual basis post takeover. This
would lead to NAV increase in the variable-priced products
segment from RM4.5 billion in 2005 to RM9.0 billion in 2010.

It is also estimated that the potential distribution fee income of

MBB, based on an average range of 3% to 4% of the value of unit
sales, would be between RM28 million and RM38 million per
annum. The potential distribution fee for MBB was estimated
based on the average industry growth of 15% for UIC and 13% for
NAV, annually.


In addition, MBB would continuously receive management fee

income for the services of Mayban Investment Management
(MIM) should ASNB decide to continue its fund management
services post takeover.

In 2005, MBB received about RM6.1

million management fee incomes from AMB.

AMBs contribution to MBBs profitability was insignificant. In

2005, the after tax profit of about RM10.1 million contributed a
mere 0.41% to the total net income of MBB Group for that
financial period.



AUTB was a wholly-owned subsidiary of Amanah Asset Holding

Sendirian Berhad and MIDF was the principal holding company.
The takeover of AUTB by ASNB would see MIDF focus and
concentration on its core competencies, investment banking.
Given the small size of AUTB, it was anticipated that the company
would not be able to compete the intense competition of the unit
trusts industry in the light of market liberalization moving forward.


Post takeover, MIDF could expect continuous management fee

income coming from the services of Amanah SSCM Asset
Management, which was currently the fund manager for the unit
trusts funds of AUTB, if the company is performing. For the
financial period ending 2004, management fee income generated
was only RM1.5 million.

AUTBs contribution to the profitability of MIDF was small. In

2004, the pre-tax profits of AUTB contributed less than 0.13% to
pre-tax profits of MIDF.


Selection Of Target

The comparative analysis of the two targets as against ASNB as laid out in
Table 5 and Table 6 indicated an obvious complementary advantage by
AMB relative to AUTB to ASNB.



The takeover of AMB by ASNB started on October 27, 2005 with the signing of
the Memorandum of Understanding between ASNB and MBB, the principal
holding company of the former MUTB. The takeover initiative was based on a
negotiation basis between both entities and after going through a number of


important processes and procedures in compliance with the M&A best practices,
the takeover effort was finally completed on November 30, 2006 and MUTBs
name was changed to AMB effectively on April 2007.

AMB was incorporated in Malaysia on March 22, 1990, with an authorized

capital of RM 5 million and a paid up capital of RM 4 million and now a whollyowned subsidiary of ASNB. AMB is solely engaged in the management of unit
trust funds and its objective is to provide investors with an opportunity to
participate in returns from a pool of money invested in a diversified portfolio of
investments such as equities, bonds and short-term money market instruments,
under professional management by a team of external fund managers. AMB has
15 years track record in managing unit trust funds in Malaysia. There are four (4)
main trustees for all AMB funds, namely HSBC (Malaysia) Trustee Berhad,
Malaysian Trustees Berhad, Universal Trustee (Malaysia) Berhad and Amanah
Raya Berhad. Amanah Raya Berhad is the sole trustee for the three Islamic Unit
Trust Funds.

AMB is responsible to carry out and conduct its unit trust business and manage
the fund in a proper and diligent manner in accordance with the rules and
regulations. AMB observed high standard of integrity and fair dealing in
managing the funds to the best and exclusive interest of the unitholders. AMB
also ensure that the investments and other assets of the funds are adequately
protected and properly segregated.


The justifications supporting the preference for AMB are as follows:


Business Expansion

The combined entity would have the largest unit trust assets under
management, worth estimated amounting to more than a total of RM64.5
billion NAV post-takeover in December 2006. An instant growth in the
size of assets under management as compared to the slower growth
organically, which creates a greater dominance of the market as a
competitive edge.


New Market Penetration

The market reach of AMB is very much wider than ASNB. The unit trust
products of AMB can be offered to various market segments from retail
public, institutions, corporations, as well as foreign retailers and

The broader market reach provided by AMB would

definitely complement the smaller and more specialized target market

segment of ASNB, which is limited to the general retail public only.
ASNB, in its move to enhance the competitiveness of the company and as
a preparation to better able to survive the globalization challenges, chose
to acquire AMB.


It is hoped that by having AMB as its subsidiary, the company would be

able to penetrate into wider market segments, tapping money from
institutions, corporations and other segments not readily available to

Exposure to various market segments and the new market

penetration would also enable ASNB to better position itself in the unit
trust industry to compete with the increasingly intense competition coming
from the market rivals.


Better Product Design and Offer

In tandem with the wider market reach, a better variety of unit trust
product offers could be developed and designed. The product offers could
be customized and tailored to suit the needs and demands in accordance
with each market segment.

In order to keep abreast with the market evolution, with takeover of AMB,
it is hoped that the enlarged entity would be better able to develop, design
and offer more product choices to satisfy the increasingly affluent
investors that demand for sophisticated investment products with better
promising returns at tolerable risk exposure.



Economies of Scale and Scope

It is also hoped that synergistic value could be achieved through the full
exploitation of complementary expertise, technologies, distribution
networks and human capabilities from the merged entities. Synergy is the
magic force that allows for enhanced cost efficiencies of the new business
and it takes the form of revenue enhancement and cost savings. The
synergy effect of this related integration is expected to lead to economies
of scope derived from the operational efficiency coming from efficient
combination of similar operational functions and distribution channels,
saving costs and resources all along the value chains.


Improve Image and Brand Reputation

The strength of ASNB lies with its fix-priced or capital-protected unit trust
products, while AMB has penetration across wider market segments. The
integration of the two companies provides opportunity for the enlarged
entity to build better image and brand reputation across products and
market segments.




The following Table 8 detailed the chronology of dates for the takeover process
on AMB:
Table 8: Takeover Timeline




1. Signing of Memorandum of Understanding

27 Oct, 2005

2. Due Diligence Exercise Started

25 May, 2006

3. Attachment of PNB/ASNB staff at AMB

4. Payment of Initial Purchase Consideration and Signing
of IT Transition Out Agreement
5. Completion of Acquisition on 30 November 2006
6. Secondment of selected former AMB staff at AMB,
post-completion exercise
7. Completion of Audit by Messrs.
8. Payment of the difference between Final Purchase
Consideration and Initial Purchase Consideration
9. Change of Company Name & Logo and Company Rebranding Exercise

1 June 30 Nov, 2006

30 Nov, 2006
1 Dec, 2006
1 Dec 15 Dec, 2006
1 - 31 Dec, 2006
5 Feb, 2007

12 April, 2007

10. Change of Funds Names and Logos

30 April, 2007

11. Relocation of head office of AMB operations from

Dataran Maybank, Jalan Maarof to Menara PNB

30 April, 2007

12. Change of Companys Financial Year End from 30

June to 31 Dec
Source: ASNB

30 June, 2007




The due diligence exercise was conducted by the relevant key persons in ASNB
and PNB, which mainly consists of ASNB personnel and fund managers from
PNB. The team came from inter-related functional departments, of various
backgrounds, skills, experience and expertise in all the relevant matters in regards
to the due diligence exercise.

In order to ensure that the best practices under M&A and takeover conduct are in
accordance with the Rules and Regulations, Messrs. PricewaterhouseCoopers
(PwC) was appointed as the consultant and advisor for this initiative.

The due diligence exercise started in May 2006 with a focus on operational
functions of AMB. The exercise covered areas such as Finance, Operations,
Marketing and Distribution Network, Products Development, Fund Management,
Human Resources and Information Technology.

In the operations area, the objective of the due diligence was to find out the major
operational activities carried out by AMB and to analyze the future need of ASNB
workforce in lieu of the operations involved. The exercise also aimed to identify
the necessary activities that need to be retained and do away with redundancies
that are not related to the unit trust operations. In this way, the operations of the


two entities can be integrated smoothly and this could help in cost reduction in the
new entity.

The operations due diligence covered processes such as the front-end counter
transaction, electronic unit trust transaction, back-office operations, staff strength
in regards to the transaction volume and data size, integrated unit trust system,
product creation and documentation procedure and system.

The exercise also covered the marketing or distribution and agency network of
AMB. The exercises areas of concern include branding, commission rate
structure and training to agents. The objective is to determine whether or not
ASNB would need to re-brand the seventeen existing products of AMB and to
ensure the regulatory requirement for such re-branding activity. The exercise also
looked for any overlapping in promotional activities and integrates the
promotional activity of AMBs existing products to ASNBs products.

This was in line with the product development assessment, which was to identify
AMBs product line that fits into a few fund categories such as the growth fund,
growth and income fund, index fund, small cap fund, capital guaranteed fund and
Islamic fund. By doing this, they could identify the products that are competing
products to those of ASNB and design a product development plan that could
integrate all the competing products. This could avoid any confusion to the
customer on the products feature from both ASNB and AMB.


Other areas of concern in the due diligence exercise in terms of the product
development assessment was to secure the unitholders database in order to
identify the unitholders who would be eligible for the cooling off rights. Besides
that, the exercise also concerned that SCs Guidelines on translated documents are
adhered to and maintain the register of those unitholders who opted for payment
of income distribution.

The exercise also reviewed the human resource management in which they had
assessed the staffing of AMB personnel and proposed to ASNB to absorb the
existing executive level staff and redeploy the clerical staff as ASNB already have
excess clerical staff. They also proposed that AMBs terms of employment to be
changed to harmonize with the terms of employment of ASNB post acquisition.

Besides that, the team also examined the financial implication of the acquisition
on ASNB and analyzed the financial performance of AMB and impact of rules
and regulation on the acquisition.




Integration of Major Functions

Many acquisitions look great on papers. Yet no matter how attractive the
opportunity, value is not created until after acquisition, when capabilities


are transferred and people from both organizations collaborate to create

the expected benefits or to discover them (Huang and Kleiner, 2004).

The completion of the due diligence and settlement of the consideration or

payment for the takeover does dictate the end of the process. In fact, it is
the beginning of a more challenging activity ahead following an M&A or
any takeover deal. Upon completion of the takeover, the following process
would be the integration process. More often than not, the integration
process proves to be more challenging in most M&A and takeover
activities. For a synergy to be realized and value to be created, the
integration process must be fast (Thompson, Strickland III & Gamble,

In the case of ASNB, after the lengthy process of due diligence that ended
with the full cash settlement of the purchase price in February 2007, the
company planned to integrate functional departments which deem to be
redundant and that these activities could be done on a sharing basis
(shared services). The functions which were planned to be integrated are
as follows:

89 Operations

The operations function supporting the daily running of the

business activities of the company is very crucial to both, ASNB
and AMB.

The integration of the operations function would

encompass putting together the back-office activities among others

involving order confirmation, unit creation and cancellation, fund
allocation, verification of transactions, reconciliation of variances,
data recording and unit trusts report productions under one
department. The integration of these activities would see that the
human resources and system supporting these activities could be
shared. Ideally the integration of the unit trusts operations of AMB
and ASNB under one department would avoid operational
redundancy and thus lead to tremendous cost-savings to ASNB.

However, during the due diligence process, it was found that the
integration of AMBs operations with ASNBs operation under one
department do not seem to be feasible on the back of the different
systems supporting the operational activities of the two companies.
In addition, the different features of the unit products of the two, of
which AMBs forward pricing products and ASNBs historical
pricing products require different set of activities and processes to
be carried out.


The findings resulted in the separate performance of the operations

functions for both under two separate departments.

Thus two

Operations Departments exist in the ASNB group and AMB stills

operate as a separate entity.

However, the number of people

running the operations of AMB is half the number of people before

the takeover. Systems

Technology is always believed to an important backbone for any

organization providing support for its business operations. The
system supporting the unit trust business of ASNB is known as the
Unit Trusts System (UTS), while the system supporting the
business of AMB is the International Unit Trusts System (IUTS).
The UTS of ASNB is a mainframe system comprises not less than
40 sub-systems interconnected via interfacing applications to
enable communication between these sub-systems from the frontoffice of all ASNB branches and Agents, to the back-office and
host server of ASNB.

The IUTS of AMB is a combination of web-based and mainframe

systems. The front-end web-based system is interfaced with the


mainframe system via an application system. AMB was however

sharing its client database with MBB. Previously, when AMB was
under MBB, the access to the database was on a sharing basis.
Upon completion of the takeover, AMB is not allowed access to
the database and that confirmation of data between AMB and
MBB will be done via Fund Transfer Protocol (FTP).

ASNB is at the moment working towards transforming its UTS

onto a new system, which is of a web-based. The system
transformation has taken place long before the takeover. Since the
business requirement for the new system is almost in place and that
changes to the requirement will only prolong the transformation
process as well as causing cost escalation, it was decided that the
integration of IUTS with UTS should be done after the completion
of the UTS transformation project. Sales and Marketing

In ASNBs takeover plan, the integration of sales and marketing

activities has been excessively delved on. In view of the
relatedness of the business of both ASNB and AMB, many
marketing activities and initiatives could be done on sharing
efforts. For example, the marketing strategy and marketing mix


decisions involving cross-selling and up-selling unit trusts products

of ASNB to the existing clients of AMB and vice versa could be
done on a shared service under one Marketing Department.

Post-takeover, the Marketing Department of ASNB has included

AMB in many of its planning for product promotions,
distributions, cross-selling products of both ASNB and AMB
across the clients of both and other initiatives including trainings,
marketing seminars and financial planning talks to sales staff and

Although market research and customer profiling

would ensure coverage across both, ASNB and AMB, some

specialized functions in the area of marketing still require a few
specialized marketing personnel to be stationed at AMB.

However, in terms of sales and marketing of the existing products

of AMB under the takeover agreement, exclusive distribution is
with the sales agents of MBB. Moving forward, ASNB would have
a free hand in the sales and marketing of new products to be
introduced and launched by ASNB.

93 Fund Management

The existing eight (8) unit trust products or 10 funds of ASNB are
currently managed by PNB in line with the Investment
Management Agreement (IMA) between the two companies. The
fund management activities are thus carried out in-house within the
PNB group. AMB, on the other hand, outsourced its funds
management activities to three external fund managers, namely,
Hwang-DBS Investment Management Sendirian Berhad, UOBOSK







Investment Management Sendirian Berhad.

At the moment, ASNB wishes to continue with the existing fund

management structure and arrangement. Having the variety in the
fund managers at one angle is good to ASNB, as it creates healthy
competition among the fund managers, internally and externally.
However plans to centralize and integrate the fund management
activities under PNB group are in the pipeline. But it depends on
the performance of these external fund managers as against the sets
of target and benchmark given to them.

The centralization of fund management activities in-house and to

be solely managed by PNB would reduce cost to ASNB, but lack


of competition among fund managers might cause complacent in

seeking for higher alpha or better return to the funds under their
management. Human Resources

In terms of human resources functions including recruitment,

hiring, staffing, human resource development and training, etc,
similar to ASNB, are handled by the Human Resource Department
of PNB as a group under shared services, post-takeover. As this
function is handled by PNB, both ASNB and AMB would be able
to focus on their core business functions and working towards
enhancing their core competencies more efficiently. Product Development

Post-takeover, product design and development for both, ASNB

and AMB, have been integrated and centralized at the Product
Development Department of ASNB. The centralization of the
product designing and development activities has enabled ASNB
to plan for the types of unit trusts or investment products suitable
to be developed for which type of investors or for which market


This has also given the upper hand to ASNB to have full control
over the introduction and launching of its unit trusts products. In
addition, competitive advantage could be enhanced as resources
are shared leading to cost savings and economies of scale in the
production of organizations unit trust products. Products Lines

With the takeover, the combined and enlarged entity has a total 27
unit trust products that can be offered to the Malaysian public. The
main benefit coming from this integration, post-takeover, would be
the broader market segment available to ASNB group for future
target. While previously, ASNB was only confined to the retail
market segment, with AMB in the group, ASNB is now able to
generate sales from the institutional market segment.

Another advantage underpinning ASNB as a group would be the

wider product types to include the Islamic and global funds. In the
Islamic unit trust product type, the availability of the Syariah
Advisory Board under AMB, enables ASNB to ride on this
advantage in coming up with Islamic funds that could be
introduced under AMB. While the experience and expertise of


handling global funds in AMB can be shared and transferred to

ASNB, making it better able to launch global funds in future.

The detail description, features and the distribution policy of

AMBs products are described as follows:


AMBS Product Line

At present, AMB manages nineteen funds, three of the funds are

categorized under Islamic Unit Trust Fund, which are AMB Dana Yakin
(AMBDY), AMB Dana Arif (AMBDA) and AMB Dana Ikhlas (AMBDI).

The rest of the funds are Conventional Unit Trust Funds, namely the AMB
Unit Trust Fund (AMBUTF), AMB Balanced Trust Fund (AMBBTF),
AMB Income Trust Fund (AMBITF), AMB Index-Linked Trust Fund
(AMBILTF), AMB Ethical Trust Fund (AMBETF), AMB Value Trust
Fund (AMBVTF), AMB Enhanced Bond Trust Fund (AMBEBTF), AMB
SmallCap Trust Fund (AMBSCTF), AMB Dana Fitrah 1 (Capital
Protected), AMB Lifestyle Trust Fund Today (AMBLTF Today), AMB
Lifestyle Trust Fund 2009 (AMBLTF 2009), AMB Lifestyle Trust Fund
2014 (AMBLTF 2014), AMB Dividend Trust Fund (AMBDTF), AMB iTrust Fund, AMB First Capital Guaranteed Trust Fund and AMB Second
Capital Guaranteed Trust Fund.


AMB is responsible for the day-to-day management of the funds in

accordance with the provisions of the respective deeds. AMB will identify,
select and invest on behalf of the unitholders. They will also effectively
employ the resources and procedures necessary for the performance of the
funds. For AMB Dana Fitrah 1, AMB i-trust fund and AMB First &
Second Capital Guaranteed Trust Fund, the funds are close-end fund and
have been fully subscribed. The following table explicated in detail the
funds managed by AMB:


Table 9: AMB Product Line


Investor Profile


Fund Size

UIC as at


Growth Fund
For investor with long
term investment interest
and capital growth of
their investment. For
investors who are seeking
investment in larger blue
chips and growth stocks.
For investor who are
seeking long term capital
growth through
investment in small to
medium sized companies
and willing to accept
higher level of risk in
order to obtain higher
growth of their capital.
For investors who are
willing to accept risks for
returns presented by the
stock market and want to
capitalize on the value
investment approach
when investing in equity
For investor who is
looking for investments
in a diversified portfolio
of assets that conform to
the Syariah Principles. It
has a medium to long
term investment horizon
of two years and above.
AMBLTF For investor who seeks
for an investment solution
2009 / 2014
for five years to ten years
or more and seek returns
from professionally
managed fund that is well
diversified across various
asset classes.



26, 1.5 billion


RM 1,000


3, 600 million 359, 371, 500 RM 500


7, 300 million 27,153,700

RM 500


24, 1.2 billion


RM 500


23, 250 million 18,280,000


RM 500



Investor Profile


Fund Size

UIC as at


Growth and Income Fund






For investors who are

seeking a fully managed
and balanced portfolio of
investments and who
have an investment
horizon of five years or
For investors who prefer
a conservative investment
approach but willing to
exploit opportunities
presented in the capital
markets and possess an
investment horizon in
excess of five years.
For investors who desire
income and capital
returns from the equity
markets and would like to
channel their resources to
companies that
demonstrate socially
responsible practices
relating to the
environment and
For conservative
investors that prefer
receiving regular and
steady income in the form
of distributions.
For all investors who are
seeking a fully managed
and balanced portfolio of
investments that
conforms to the Syariah
Principles and has an
investment horizon of
five years or more.


19, 1.15 billion 297,389,885

RM 1,000


27, 500 million 116, 722,300

RM 1,000


7, 300 million 36,818,600

RM 500


6, 800 million 115,475,000

RM 500


17, 400 million 62,278,300

RM 500



Investor Profile


Fund Size

UIC as at


Income Fund

For investors that prefer a


consistent and steady


27, 1 billion


RM 1,000

19, 600 million 307,795,187

RM 1,000

23, 250 million 43,095,000

RM 500

16, 400 million 31,994,000

RM 500

appreciation in value
through investments in
debt instruments
permissible under Syariah


For investors seeking a


medium to long term


investment with regular

interest income and some
potential for moderate
capital growth.


AMBLTF For investors who seek a


defensive investment


solution that comprises

fixed income instruments
and a minor portion of
equity. The returns are
from a professionally
managed fund that is well
diversified across various
asset classes.

Index Fund

For investors who desire


returns that are consistent


with the performance of

the KLCI and have a
medium to high-risk

101 Product Distribution Policy

The funds with exception for AMBILTF, AMBVTF and AMBSCTF

will distribute all or substantially all of its net income and net
realized capital gains to the unitholders at the discretion of AMB.
The distribution of each fund will vary depending on the
performance of each fund and prevailing economic conditions.

For AMBILTF, AMBVTF and AMBSCTF, it is not the funds main

objective to distribute income as the main focus of the funds is to
secure capital growth in line with the performance of the KLCI.
Income distribution for the unitholders is declared by way of
distribution paid or the creation of additional units at the end of
financial year for the respective funds.


The New Organizational Structure

Upon the acquisition of AMB, the new organizational structure shows

AMB as a subsidiary of ASNB and ultimately reporting to PNB. The
acquisition combined the distribution channels of AMB unit trusts
products and ASNB unit trusts products and this is in line with the
objective of the takeover to centralize the distribution channels of both


AMB and ASNB will act as the producer for the all the funds and the
distribution channels will distribute the products accordingly. The
following diagram is the new organizational structure of the new entity.

Figure 13: Post Acquisition Organizational Structure.



Distribution Channels


RHB Bank

Branches and



Source: The Acquisition Proposal, PNB





In any M&A or takeover deal, putting the right price to the target is a paramount
process. In order to arrive at the right or fair price, knowing what an asset is
worth and what determines that value is prerequisite for intelligent decisionmaking (Damodaran, A., 2006, pg.1). At the preliminary stage of the AMB
takeover by ASNB, the management valued AMB based on an indicative price by
comparing some similar M&A deals that took place a few years prior to its
initiative and applying a somewhat similar rule to the deal. While, ASNB applied
indicative valuation approach to arrive at the fair consideration to the deal, this
study tends to compare managements valuation with DCF valuation, a popularly
used in investment evaluation technique to determine the fair price for a private


Takeover Price based on Indicative Valuation

The takeover of AMB by ASNB was completed through a cash settlement.

The internal financing of the takeover deal was decided in view of the
substantial cash reserves of ASNB, which was more than sufficient to fund
the acquisition as part of its growth strategy.

The evaluation of the


consideration for or the pricing of AMB by the bidding company was

based on the indicative valuation as illustrated in the table below:

Table 10: Company Indicative Valuation of the Takeover Price

For Financial Year Ending June 30,
Net Tangible Assets (NTA)

(RM mil)

Profit After Tax


Management Fee Income


NTA at 1.74x premium


Management Fee Income at 1.74x premium


Minimum value


Maximum value


The assumption for the attachment of 1.74 times premium to either NTA
or management fee income received by ASNB was based on a fair
premium justifiable for companies in the mutual funds industry. The
premium was an indication of the potential income expected to be
generated by the target company from its business transactions in future.

The 1.74 times premium was adopted based on several M&A deals done
earlier in the range of 1.5 times to 1.8 times premium attached to NTA.
For instance the deal between MAA Mutual Berhad (MAA Mutual), the
bidder and MBF Unit Trust Management Berhad (MUTMB), the target
was done at 1.5 times NTA; and the deals between CIMB Berhad and
Commerce Asset-Holding Berhads 70% stake in both Commerce Asset


Funds Managers Sendirian Berhad (CAFM) and Commerce Trust Berhad

(CTB) at 1.8 times price to book.

The takeover price for AMB was estimated to be in the range of RM24.6
million, at the minimum price and RM44.0 million, at the maximum price
based on the indicative valuation as illustrated in Table 10. The indicative
takeover prices proposed were just a preliminary indication to the
management and Board of Directors to facilitate decision making during
initial evaluation stage when it was started in December 2005.

After further deliberation on the expected benefits, business potentials and

complementary synergy from AMB to ASNB, including discussion with
external professionals in this field, the management and Board of
Directors of ASNB decided that a fair price to be paid for the takeover
would be based on the NTA of the company. There was no premium
attached to the NTA valuation. On November 30, 2006, at the point of
completion of the takeover, a cash settlement amounting about RM34.6
million or RM8.67 a share (at AMBs share capital of 4,000,000 shares)
was made, being the final price for AMB based on the NTA of the
company from its audited accounts.

The ultimate motive for the acquisition to ASNB was to have a platform
for transformation and growth in the variable-priced segment of its mutual


funds business. In addition, penetration into the institutional segment was

another objective of the AMB takeover. AMB as a target, was deemed to
be able to provide all these and that the management of ASNB was
interested in just having the business of AMB comprises its unit trust
products, part of its distribution channels (the individual sales force) and
the system supporting its unit trusts operations minus the human capital.
Therefore, the acquisition price at NTA without having any premium
given to AMB was felt to be justifiably fair by ASNB.


Fair Valuation based on DCF

With a going concern assumption for the business of AMB, the company
was valued using the cost of capital approach by discounting the free cash
flow to the firm (FCFF) at the weighted average cost of capital (WACC).
The determination of firms value of the operating assets in this
Discounted Cash Flow (DCF) model would depend on assumptions made
about its future growth. The value of firm derived from the value of
operating assets of that company on a going concern assumption can be
written as the present value of the expected cash flows to the firm as


Valuing firm operating assets:


Value of firm =




FCFFt = expected FCFF to firm in year t

WACC = weighted average cost of capital

In an assumption that AMB reaches steady state after n years and starts
growing at a stable growth rate gn after that, the value of the firm can be
written as follows:

Value of operating assets of the firm




FCFFn+1/(WACC- gn)]

The formula for the calculation of WACC is as follows:




x (Kd )


cost of debt,


cost of equity


x (Ke)


Calculation of Cost of Debt, Kd:




rate of return on debt


taxation rate of the firm

Basis for calculation of cost of debt is as follows:

Base Lending Rate (BLR)*


BLR + 4.8% credit risk


Note: *Based on the conventional financing rate of MBB effective from

28 April 2006, and no revision to the rate until now.

The cost of debt for AMB is estimated based on BLR plus 480 basis points
of risk premium at an assumed A2 corporate rating (in line with firms in
similar business profile). This is based on an assumption of an average
credit risk spread of about 60 basis points from one investment grade to
another for a company bond rating in the private debt securities market.
(Refer to Appendix 2).

Thus, the cost of debt is:


11.55% x (1 0.28)




Calculation of Cost of Equity, Ke:

Ke based on Capital Asset Pricing Model (CAPM):



Rf + (Rm Rf)

risk free rate of return

beta of AMB


return on market

The risk free rate of return, Rf, is based on the annual historical average
rate of return on 5-year Malaysian Government Securities (MGS) from
2001 to 2005 of 3.59% (refer to Appendix 3 for details) or

Rf = 3.59%

The return on market, Rm , is based on the 15 years historical average rate

of return of the price index of the Kuala Lumpur Composite Index (KLCI)
from 1990 to 2005 of 7.32% (details in Appendix 4) or

Rm = 7.32%

The market risk premium,

Rp = (Rm Rf)
Rp = 7.32% - 3.59%
Rp = 3.73%


Estimation of Beta for AMB, :

Since the target company, AMB is a private company and that the beta
numbers are not published by any data or information provider such as
Bloomberg, Reuters or Bernama.

The beta estimation for AMB was

determined using conventional approach for estimating beta by running a

regression analysis on the earnings return of AMB (Rp) against the market
return (Rm). The formula for beta estimation is as follows:

Rp = a + (Rm)


intercept from the regression

slope of the regression,


The regression analysis results:

Table 11: Regression of AMB Earnings Return against Market Return




t Stat


Rp = 0.0136 + 0.6822(Rm),
= 0.68

The calculated of 0.68 is an unlevered beta of AMB given that the

company was debt free.

For FCFF modeling, levered beta would be

calculated based on an optimal capital structure, with an ideal composition

of debt and equity in the firm valuation. The determination of the optimal
structure of capital for the takeover financing based on ASNB indication
of attaching 1.74 times equity premium so as to be in line with the
industry practice is as follows:

Table 12: Indication of Optimal Capital Structure

Debt ratio

D/E ratio


Cost of equity


Cost of Capital





























































Note: Optimal structure is at the lowest Ke of 9.63%, at debt ratio of 20%.

The optimal capital structure for the takeover financing stands at 25% debt
to equity ratio, which is 20% debt and 80% equity composition.


Basis of Computation for the Optimal Capital Structure:


7.32% x 1.74 times





Tax rate, t = 28%

BLR = 6.75%
u = 0.68

Calculation of Levered Beta, L:


u [1 + (1 t) D/E]

0.68 [1 + (1 0.28) x (0.2/0.8)]


Calculation of Ke based on CAPM:


Rf + L(Rm Rf)

3.59% + 0.80(7.32% 3.59%)


Calculation of Ke based on Prospective Equity Premium:


DPS/EPS + EPS growth

0.07% + 6.22%



Calculation of Ke based on Choosing Riskless Rate:


[RLT (RLT RTB)] + L (Rm RTB)

[7.81% - (7.81% - 3.01%)] + 0.80(7.32% - 3.01%)


Calculation Ke based on 1.74 times Equity Premium:


Rf + L (1.74Rm Rf)

3.59% + 0.80[(1.74 x 7.32%) 3.59%]


The average cost of equity, Ke is as follows:

Basis of Calculation:




Prospective Equity Premium


Choosing Riskless Rate


1.74x Equity Premium


Average Ke


In order to be very conservative in the estimation of the fair value of AMB

for the takeover consideration, the cost of equity based on 1.74x equity
premium to the market return was used. The higher cost of equity applied
is to justify for the expected long period of lock-in value given the fact
that AMB is unlisted. As such, the cost of equity of 10.96% was used for
the estimation of WACC.


Calculation of WACC:



x (Kd )




x (8.32% )


x (Ke)

x (10.96%)

WACC = 10.43%

Therefore, the valuation of AMB based on DCF method is calculated on

the following assumptions:

DCF Assumptions:
Cost of Debt (Kd )


Cost of Equity (Ke)


Levered Beta, (L) of AMB


Debt/Equity ratio


Weighted Average Cost of Capital (WACC)


Tax rate, t


Terminal growth rate, g


The net present value of the operating assets of AMB based on DCF
valuation is as follows:


Table 13: DCF Valuation of AMB

The valuation of AMB based on DCF value of the operating assets of the
company, with a going concern assumption for the business, reflects an
enterprise value of RM92.7 million.

The pro-forma income statement and balance sheet of AMB for five years
to 2010 are as presented in the Appendix 5 and Appendix 6, respectively.

The assumptions for the forecasts are as follows:


Table 14: Forecast Assumption for DCF Valuation



Comparative Premium or Discount to Indicative Valuation

The DCF value is three (3) times of the companys NTA as at November
30, 2006 of RM34.6 million, as what being paid by ASNB for the
consideration of the takeover. The premium value reflects the unit trust
funds value on a going concern business. The takeover price based on
NTA of RM34.6 million or RM8.67 a share was a value investment to
ASNB relative to the DCF valuation of RM92.7 million. ASNB has thus
paid a discount of 62.7% or RM58.1 million from the estimated DCF
value of AMB of about RM92.7 million.



In many M&A and takeover deals, measuring the creation of value as the outcome
of the initiatives would be one painstaking activity and involves a lot of
subjectivity. Patrick A. Gaughan in his book, Mergers, What Can Go Wrong and
How to Prevent It (2005) agreed that successes depend on the defining criteria for
the success that had been set or agreed on.

The determination of value in the case of ASNB, the measurement of whether or

not the takeover of AMB brings value or otherwise to ASNB is analyzed based on
the assessment and comparison of the profitability ratios before, during and after
the takeover. The profitability position of ASNB on a consolidated basis post-


takeover is also analyzed to examine the synergy or value as the outcome of this
takeover to the acquiring company. The statement of income and balance sheet of
ASNB and AMB pre, during and post-takeover are as presented as follows:

Table 15: Income Statement of ASNB and AMB

Note: AMBs 2007 financial reports run for 18 months from July 2006 to December 2007.

At a glance, through out the three stages of the takeover process, the acquiring
company, ASNB, indicates an uptrend in its revenue and net income or net profit
performance, while AMB is otherwise showing a declining net profit. On a
consolidated basis, post-takeover, the group managed to record net profit of
RM155.4 million. This reflects an increase in net profit of RM9.9 million when
compared with RM145.5 million net profit of ASNB as a single entity. The
RM9.9 million increase is however, 42.1% or RM7.2 million lower than ASNBs


projection of an increase in net profit of RM17.2 million post-takeover during the

due diligence process. (Refer to Exhibit AC-IV, in the Appendix 7).

Table 16: Balance Sheet of ASNB and AMB

Note: AMBs 2007 financial reports run for 18 months from July 2006 to December 2007.


Both, ASNB and AMB, show increasing trend of assets and shareholders equity
in all the three stages. Most importantly, on a consolidated basis, the group
indicates an increase of RM44.6 million in its shareholders equity from RM167.4
million to RM212.0 million post-takeover.

Table 17: Key Financial Ratio of ASNB and AMB

Note: AMBs 2007 financial reports run for 18 months from July 2006 to December 2007.

The assessment of key financial ratios of both, ASNB and AMB, pre, during and
post-takeover, helps to examine the synergy or value resulting from the takeover.
The companies performance encompassing its profitability, receivables turnover
(the turnover of companys income generated from initial service fee,
management fee and other operating fee), total asset turnover and its networth as


measured by NTA provide good insights into value creation as the outcome of
this takeover.


Profitability Ratio

Firstly, in terms of profitability, the acquiring company, ASNB, indicates

a good uptrend in the net profit margin (Net income/Sales) growing from
24.4% pre-takeover to 39.4% post-takeover, in line with its growth in the
net profit through the three periods. ASNBs return on asset (ROA) as
measured by Net Income over the Average Total Assets, has also
improved tremendously from 45.6% pre-takeover to 68.8% post-takeover.
Consistently, the shareholders of ASNB have also enjoyed a handsome
return on equity (ROE) measured by Net Income over Average
Shareholders Funds, growing from 88.0% pre-takeover to 100.5% posttakeover.

AMB, on the other hand, records a declining number in net profit growth,
ROA and ROE, with an exception to its net profit margin, which indicates
an improvement post-takeover compared with pre-takeover. The ROA of
AMB declined from 26.0% pre-takeover to 17.6% post-takeover, while
ROE declined from 43.9% pre-takeover to 25.1% post-takeover.


profit margin post-takeover is better than pre-takeover on the back of


faster decline in expenditure of 25.8% vis--vis the decline in revenue of

17.6% from 2005 to 2007.

Post-takeover, on a consolidated performance, the ASNB group

experiences a decline in all the key profitability indicators, net profit
margin of 38.7% versus 39.4%; ROA of 58.0% versus 68.8%; and ROE of
84.3% versus 100.5%; despite the better growth in net profit of 48.5%
versus 39.0%. This means that the unimpressive performance of AMB
has eroded ASNBs profitability margin and better capability of its assets
in generating sales and income to the management of ASNB as a single
entity. The eroding ROE on a consolidated basis reflects lower value to
the shareholders relative to ASNB as a single entity. Form this analysis,
as a group the business performance of AMB does not seem to add value
to ASNB but otherwise, cause erosion of business performance of ASNB
as an outcome of the takeover.


Receivables Turnover Ratio

The receivables turnover to ASNB and AMB would indicate the

companys capability to quickly covert account receivables into income
comprises the initial service fee, management fee and other operating fee,
which make up the component of the turnover or revenue to both, ASNB
and AMB.

Receivables turnover is measured by Sales over Average


Account Receivables. The receivables turnover of ASNB is showing a

faster conversion during pre-takeover of 62.4 times and somewhat stable
during and post-takeover of 36.4 times and 36.7 times, respectively. AMB
indicates almost a similar pattern with receivables turnover declining from
3.5 times pre-takeover, 2.0 times during the takeover and 2.4 times posttakeover.

The consolidated results from takeover, reflects a slower receivables

turnover of the ASNB group at 17.1 times, indicating a slower conversion
of receivables into revenue to the group. This could probably due to the
longer period of about a week before cash is receipt for the unit trust sales
of AMB as compared with the on-the-spot sales of ASNB unit trusts.


Asset Turnover Ratio

Total asset turnover measures the efficiency of the company in using its
assets to generate sales, computed as Sales over Average Total Assets.
ASNB has shown a slower asset turnover pre-takeover at 1.9 times to 1.8
times post-takeover. AMB, similarly, has shown an obvious downtrend of
asset turnover from 1.0 times pre-takeover, 0.6 times during and post
takeover. On a consolidated basis, ASNB group reflects a slower asset
turnover of 1.5 times compared with 1.8 times as a single business unit.
Post-takeover the generally lower asset turnover of AMB, suggesting a


less efficiently used of asset to generate sales by AMB, has dragged down
the overall efficiency level of ASNB in assets usage as a group.


Companys Net Worth

A very traditional and conservative measurement of companys net worth

is by looking at the NTA per share of the company. The net worth of
ASNB has been on an uptrend from RM2.44 a share pre-takeover,
RM3.98 a share during the takeover process to RM4.39 a share. AMB has
also showcased a consistent increase in companys NTA from RM6.14 a
share before the takeover to RM11.01 a share post-takeover. As a group,
the takeover has improved the net worth of ASNB by 17.8% from RM4.39
a share pre-takeover to RM5.17 a share post-takeover.



Economies of scale is an economic term that refers to the reductions in per unit
costs as a result of an increase in the size or scale of a companys operations. In
order to measure economies of scale achieved by ASNB post-takeover,
comparisons of per unit production cost based on consolidated basis as against
standing alone operations would be made. The calculation of cost per unit in
circulation is measured by dividing the general and administrative expenses,


which are the costs associated with the unit trusts operation over the number of
units in circulation (UIC). The calculation is illustrated as follows:

Table 18: Per unit Cost of Units in Circulation

For the Financial Year

Cost associated with UT operations (RM Mil)

Units in Circulation (Mil units)
Cost per unit (sen)





71,781.02 2,748.29





Table 18 indicates that the cost per units circulated in the market increases from 0.23 sen
per unit to 0.24 sen per unit as both companies, ASNB and AMB, are combined.



The AMB takeover to ASNB was initiated on the main objective to grow the business.
At another juncture, ASNB also hoped to expand its market reach beyond the existing
retail and mass public market. This is to better position ASNB in the marketplace so as to
enhance its competitive advantage in competing with other unit trusts players in the
industry. There were also other factors motivating ASNB to jump into the M&A
bandwagon in the lights of market liberation and globalization that is witnessing few
foreign fund managers already setting their bases in Asia. The assessment of the
achievements of these motivations post-takeover is by comparing ASNBs position as a
single entity with its position as a consolidated entity post-takeover, and the conclusions
are elaborated as follows:



The hope and aspiration to grow the existing business have always been the major
factor leading companies into M&A deals. Gaughan, Patrick .A (2005) in his
book, Mergers: What can go wrong and how to prevent it, agrees that the two
most common reasons for M&A are growth and synergy. Growth enhancement as


a motive for M&A could also be interpreted into two, revenue (or profitability)
growth or sheer size growth.

In terms of sheer size, ASNBs total fund size in terms of units in circulation
(UIC) as a group (combined entity of ASNB and AMB) has grown to 74,529.3
million units for a total of 25 products or 27 funds compared with UIC of
71,781.0 million units for a total 8 products or 10 funds as a single entity posttakeover. But, the impact of size increase does not bring in much impact to ASNB
when the company is already in its leading position. Only if the acquired company
is able to add to the advantageous of the business then ASNB would benefit from
the acquisition.

In terms of revenue or profitability growth, ASNB as a combined entity achieved

a higher net profit growth of 48.5% versus 39.0% as a single entity. However, net
profit margin, ROA and ROE ratios indicated erosion in profitability despite
growth in profit. The net profit margin slowed down when combined as a group.
The lower net profit margin of AMB dragged down the higher net profit margin
of ASNB when consolidated as a group.

The lower ROA of 58.0% on a consolidated basis compared with better ROA of
68.8% as a single entity indicated the reducing asset efficiency when combined.
While the shareholders are not experiencing maximization of value from their


equity investment into the combined group as reflected by lower ROE of 84.3%
compared with the 100.5% ROE of ASNB standing alone.

However, in terms of companys networth as measured by the NTA of the

consolidated accounts improved 33.4% from RM73.4 million to RM175.7 million
or 17.7% per share increased from RM4.39 a share to RM5.17 a share. ASNB as a
combined entity has been able to achieve improvement in companys networth as
measured by its NTA.

It can be concluded that in terms of profitability, ASNB as group has far from
achieving its profitability growth objective and that the company would be better
off operating as single entity. Gaughan, Patrick .A (2005) commented that
sometimes company may have reached its most efficient size, and growing will
make it less efficient. He also thinks that sometimes it is better for a company to
maintain its position while it still actively seeks better opportunities but resists
pursuing returns that do not meet an appropriate hurdle rate.

In addition, the value maximization objective to the shareholders has also been
violated on the consolidated basis, whereby AMB has not been able to create
value to the shareholders of ASNB as a combined entity. In this instance, ASNB
without AMB is seen to be better off supported by the reflection of the asset
efficiency in its ROA number and the shareholders value maximization as
indicated by the ROE number based on the findings of this study.




Synergy is another most frequently cited term in M&A. The term synergy is often
associated with the physical sciences and in the field of M&A, this term is
actually become a bit overused as a reason for going into M&A deals. In physical
sciences, synergy refers to the type of reactions that occur when two substances of
factors are combined to produce a greater effect together than what the two
substances could account for when operating independently. Simply stated it
refers to situation where 1 + 1 = 3 instead of 2. In M&A, synergy translates into
the ability of a corporate combination to be more profitable than the individual
profits of the firms combined on an independent operation.

Operating synergy refers to the efficiency gain or operating economies that are
derived in any horizontal or vertical merger. Operating synergy is realized when
two combined firms achieve reduction in costs that may be coming from
economies of scale or spreading overhead. The operating synergy resulting from
the takeover and integration of AMB with ASNB could be examined based on the
achievement of the following motivations for the AMB takeover:


Market Penetration


Post-takeover, the combined entity of ASNB has been able to reach across
broader and wider market not restricted to just retail and mass public
market. The existing reach of AMB into the institutional market segment
provides avenue for ASNB to generate sales from potential institutional
and corporate investors. Among the faster sources of unit trust sales
growth would be sales generation from this institutional market segment
comparative to the retail segment. The reason underpinning this
observation is obviously due to the huge appetite of institutional investors
leading to the bulk purchases of investment products.

Another important finding supporting the market penetration synergy that

comes along with the AMB takeover would be the penetration into other
types of product segments namely Islamic funds, global funds and bond
funds. AMB provides instant complementary access to the clients of these
product types for market intelligent and profiling to better understand their
needs for future product design and development for such segments.

Post-takeover, AMB provides operational synergy to ASNB in the forms

broader market penetration by complementing the access into institutional
market segment, previously not accessible to ASNB. Additionally,
availability of various product types would not only facilitate transfer of


knowledge, but also accommodate better understanding of investors

preference and tolerance towards differing product variants.


Product Development Capability

In terms of product design and development capability, the AMB takeover

is viewed as having synergy to ASNB on justifications that the broader
and wider access to various market segments and product types provide
better understanding of the market needs to facilitate effective product
development and design. In addition, product launching is expected to be
faster with the unit trust system, IUTS, of AMB, which is rather more
flexible than UTS of ASNB on the back of the parameter-driven capability
of IUTS.


Distribution Capacity

The combined and enlarged entity of ASNB, would be presented with

broader distribution channels given not only the traditional banking
agency network of MBB, CIMB, RHB and PMB, but also supported by
the personalized sales force of MBB. The AMB takeover has also called
for greater collaboration between ASNB and MBB as PNB group of


companies especially in the electronic channel or e-channel, the e-banking

facility under

A more effective corporative venture with MBB on various initiatives

other than the e-channel such as personalized selling by MBBs sales
executives and the appointment of MBB as the Institutional Unit Trust
Agents of ASNB, following the success of the takeover of AMB proves to
be operationally beneficial to ASNB in terms of its distribution capacity.

However, despite the takeover, MBB is still maintaining its exclusive right
over the distribution of the existing unit trust products of AMB. The
disability of ASNB to uplift the exclusivity of selling the existing unit
trusts products of AMB by MBB sales force might incapacitate ASNB in
achieving its target sales for each of these unit trusts products should MBB
lack aggressiveness in pushing the products to the market. Synergy would
be severed due to the lack of control over such distribution decision.


Economies of Scale

Company will achieve economies of scale when per unit cost is reduced as
a result of an increase in the size or scale of a companys operations. This
happens when company is able to spread costs of operations over larger
volume of production given the increase in companys size of operations.


In the case of ASNB, on a consolidated basis it has not been quite true that
the company achieved economies of scale given the marginal rise in per
unit cost of circulating one more unit in the market from 0.23 sen to 0.24
sen on a combined business of ASNB and AMB. The higher per unit cost
of running the business of AMB as compared with ASNB has actually
caused the overall cost of ASNB as a group to increase when combined.


Brand Reputation

The determination of whether or not ASNB has achieved improvement in

brand reputation with the takeover is very subjective and probably the
most accurate way of measuring it would be through market research and
surveys of the existing clients and potential investors of both ASNB and
AMB. This study has not conducted market survey to actually determine
the brand reputation achievement with the AMB takeover by ASNB.

However, through interviews with the AMB personnel reveals that AMB
has suffered tremendous redemptions of units during in 2006 and posttakeover in 2007. AMB has recorded RM1.1 billion redemptions in 2006,
which has increased by 193.3% from 2005. In 2007, redemption of units
dropped by 10.5% but value wise, it is still on the high side at RM989.0
million. AMBs unit trusts sales has also dropped 47.0% or RM317.8


million in 2006 and continued to decline by 52.7% or RM188.7 million in

2007. AMB recorded net redemptions in both years, 2006 and 2007,
during and post-takeover periods, respectively. Refer to Appendix 8 for
the details.



When the combined entity is experiencing increased capability to generate

revenues, then the company has achieved revenue-enhancing synergy. Revenueenhancing synergy could be achieved through use of cost-cutting techniques
through the findings of overlapping business or functions that can be eliminated,
thereby cutting cost. Post-takeover revenue-enhancing synergy to ASNB is
through the followings:


Reduced Number of Staff

Post-takeover, in terms of staffing, ASNB has actually managed to reduce

the number of staff working with AMB from about 45 people per-takeover
in 2005 to about half of the size at about 20 people post-takeover in 2007.
Post-takeover, ASNB has been able to run AMB at half the cost of the
remuneration paid pre-takeover.


Shared Services cost-cutting


Upon completion of the takeover, a number functional department is

managed on a shared service basis in the attempt to reduce redundancy
and cut cost. For instance, Product Development, Sales and Marketing and
Human Resources are run on shared services. However, overlapping
departments such as Operations, Systems and Accounts are still operating
separately under each entity.


Combined Profits

As indicated by the profitability ratios of net profit margin, ROA and ROE
of ASNB on a combined entity, the company has not been able to achieve
revenue-enhancing synergy on combined profits post-takeover. Probably a
lot more initiative in streamlining the business activities within the
combined entity is needed in order to realize this synergy moving forward.



Financial synergy often relates to the companys capability to access to capital.

One way of alleviating the problem of insufficient access to capital is through a
merger with a company that has better access to capital.


Access to Capital


A large organization like ASNB face no difficulty in accessing to capital

given its market leading position in the unit trust industry. Additionally, its
principal holding company, PNB is often linked to the government, being
once set up under the National Economic Policy as a government vehicle
for fund mobilization among Malaysians.

Therefore, the takeover has basically no impact to ASNBs accessibility to

capital should the company is looking for one. But in view of the
companys excess cash reserves amounting to more than RM170.7 million
on a consolidated account, ASNB is not in the dire state to source for
external financing for its immediate or future expansion plan.



Mergers and acquisition is proven to be an inherently difficult deal. ASNB faced

challenges in reorganizing their business units and consolidating their products
and distribution channels with AMB throughout the takeover process. But they
have so far managed to face the challenges during the takeover process and the
objectives were finally fulfilled. But the story does not end there. Moving
forward, there are few elements that need to be deliberated by ASNB in order to
meet the expectations of their stakeholders and unitholders. It is strongly believed
that good strategic planning pre-takeover and efficient implementation planning
post-takeover would ensure a more structured and effective takeover deal.



The findings from this study reveals that the due diligence process was conducted
after the completion of the signing of the Memorandum of Understanding (MOU).
In other words, the due diligence was carried out after an agreement has been
ratified. In accordance with best practices, in general, due diligence should be
embarked on prior to entering into any M&A or takeover agreement.

The pre-merger processes including the due diligence exercise requires the most
amount of time and energy because the result of the due diligence impacts the
takeover decision and determines the conditions to take to the negotiation table


(Anderson Consulting & MII, 1999). At this stage, management would be able to
probe into critical areas determining the success factor of the target moving
forward and ensuring that bidders expectations are met. This would also assist
management in gathering information on possible synergies attributable to
acquiring the target.



A takeover deal does not end with the acquisition of the target or upon settlement
of the purchase consideration at the end of the deal. The most vital process
following any takeover deal would be the integration process, which is also the
most crucial success determinant of a takeover. According to Banal-Estanol and
Seldeslachte (2004) majority of mergers and acquisitions failed due to poor posttakeover integration efforts.

Weston, Mitchell and Mulherin (2004) in their textbook for Takeovers,

Restructuring and Corporate Governance, highlighted that ineffective integration
encompassing poor planning, poor execution in being either too slow or too fast
would also lead to merger failure. Therefore, in the case of the takeover of AMB
by ASNB, there are few core functional activities that need to be integrated
effectively to ensure that the takeover would benefits both, the management and
the unitholders.



Integration of Unit Trusts Systems

The tasks of integrating AMB with ASNB still remains an uncertainty and
ASNB management plays the most important roles if the synergy is to be
achieved and the total effort is to succeed. Technology in general and unit
trust system in particular, is the backbone supporting daily business operations
of both ASNB and AMB. System integration must be fast enough following a
takeover to ensure that the synergy expectation from the takeover can be
realized. While management indicated planning for the system integration is
in the pipeline, synergy might have been marginalized due to the slow


Integration of Unit Trusts Operations

The operations being a substantial support function to business organization

would be another important area requiring efficient integration after a
takeover. The findings indicated that the operations functions encompasses
front, middle and back offices of the two entities, ASNB and AMB, are
distinct and separate from one another. Ideally, in tandem with successful
system integration, integration of the operations function could probably save
ASNB in terms of resources, business space, office rentals, utilities and other
facilities related to running this particular functional department as a single


Easier said than done, but Thompson, Strickland III and Gamble in their
textbook Crafting and Executing Strategies: The Quest for Competitive
Advantage, 15th Edition (2007), agreed that integrating operational relatedness
as in the case of ASNB and AMB would result in value creation coming from
the economies of scale through sharing of activities and resources.


Integration of Financial Reports

At the end of every initiative, the achievement or result of it would be the

most anticipated outcome. Whether or not objectives have been met, it would
be easier to determine value achievement or synergy should the accounting
and financial reporting of the two companies, ASNB and AMB, are reported
on a consolidated basis. However, management has indicated that
consolidation of financial reports will be exercised from 2008 onwards.


New Product Introduction

It was observed that new unit trust products introduction to the market is
rather slow under the new entity since the completion of the AMB takeover in
2006. Investment instruments and products are very dynamic in nature, that
innovation and aggressive product introduction are required to attract
investors and boost company sales, which in turn contributes to the growth of


the company organically. To date, two years after the completion of the
takeover, AMB undertakes distribution for only one new product, the PNBStructured Investment Product (SIF), which was launched on May 12, 2008,
with a size of 3 billion units over an offer period of 45 days after the

New product introduction under the new entity should be fast in order to
signify aggressive and serious efforts of the new management in reviving the
newly build entity following the takeover. This would in turn projects a better
image in the eyes of the existing unitholders of both ASNB and AMB, and
potential investors that helps in creating a stronger brand reputation, which
boost confidence among investors with the new management.



The function of ASNB as the unit trust distribution arm of PNB demands
effective marketing initiatives to drive the company towards building stronger
competitive advantage over its competitors in the marketplace. The AMB
takeover complemented ASNB with the broader distribution channels that
comprise of the existing traditional over-the-counter channels, personalized
sales agents of ASNB and AMB and the possibility of riding on the MBBs echannel through cooperative collaboration. In addition, ASNB has gained
wider access into new market segment, the institutional or corporate segments


and the Islamic funds category. These are synergies valuable to ASNB in
charging the company further into the industry.

However, the distribution of the existing unit trusts products of AMB, despite
the takeover, is currently under the exclusivity of the individual sales agents
of MBB. The exclusivity of the distribution for the existing AMB products by
MBB agents alone would hinder effective strategic planning over the
marketing mix decisions encompassing product, price, place and people, by

It is felt that with the takeover, ASNB should have exclusive rights and
decisions over all the products of AMB and the marketing strategy moving
forwards should be at the discretion of ASNB. Although, the restrictions only
apply to the existing products of AMB, management should look into
measures as to how this limitation could be exploited, for instance, through
the setting of certain sales target to be achieved by MBB agents in the sales of
the existing products, failing which the exclusivity shall be rescinded.



Another aspect moving forward is the communication between the company and
the employees, and the company with external parties. The acquisition makes the
communication channels grow longer due to more people involved, therefore


clear and constant communication throughout the integration process can provide
decisive answers to uncertainty and dispel frequent rumors.

As suggested by Appelbaum et. al. (2000), providing clear, consistent, factual,

sympathetic and up-to-date information in various ways will increase the coping
abilities by the employees, which will in turn increase their productivity and
ultimately give the impact to the companys performance and create sustainable
competitive advantage in achieving the projected strategic fit and synergies.

Internally, the needs for the ASNB to clearly define their goals and objectives and
to reach the goals within proper and reasonable time frames are also crucial so
that the change process will not be dragged out and eventually brings them to the
old way of doing things.

Communications with the unitholders on the current state of ASNB upon the
takeover and the updates on latest product development are also essential to
ensure that the unitholders are well informed and updated with regards to their
investment with both ASNB and AMB. The dissemination of information can be
done through various means for example companys website, newsletter, annual
report, special announcement and media releases. External communication to
existing unitholders and general public is viewed as important in managing and
promoting investors confidence in the management and company.




In the light of globalization and nearing market liberalization under the World
Trade Organization (WTO) in 2010, competition in the financial services industry
including the unit trust industry, is getting more intense. In fact, the influx of
foreign fund managers into Asian market, setting bases in Singapore, the
Philippines, Thailand and Indonesia, is widely evidence at present. The dynamic
and more challenging business environment in the near future calls for the needs
for ASNB to adjust their way of doing business to adapt to the worldwide changes
and the threats of new, existing and global competitors. By being the market
leader in the domestic front of the unit trust industry, ASNB will be placed under
close scrutiny of the competitors, locally and globally, for any competitive move.

In order to keep abreast with the ever challenging business environment, it is

strongly felt that ASNB should take large steps in improving their business
operations, marketing initiatives, human capital and technology. For instance, the
business processes must be standardized and simplified to enhance efficiency, the
e-channel must be properly developed and constantly updated in a more
interactive manner to facilitate online transactions, the projection of caring,
courteous and professional people and a flexible as well as reliable technology to
support the business operations would further boost companys image. In
addition, ASNB should be fast in introducing and coming up with innovative and
attractive products in all categories (for example, Global Funds, Islamic Funds


and Hedge Funds) to attract global and domestic investors to invest with the




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21. Porter, M.E (1985). Competitive Analysis. Free Press. NY.

22. Proposal of Acquisition of ASNB Businesses in PNB Group, Internal Paperwork


23. Proposed Acquisition of Mayban Unit Trusts Berhad By Amanah Saham Nasional
Berhad: Operational Due Diligence Report (2006).

24. Salama, A., Holland, W., Vinten, G. (2003). Challenges and Opportunities in
Mergers and Acquisitions: Three International Case Studies Deutsche BankBankers Trust; British Petroleum-Amoco; Ford-Volvo. Journal of European
Industrial Training, 27/6, 313-321.

25. Schraeder, M. and Self, D.R (2003). Enhancing the Success of Mergers and
Acquisitions: An Organizational Culture Perspective. Management Decision,
41/5, pp. 511-522.


26. Seah Ern Loon Michael (2005). Effect of Mergers and Acquisitions on Malaysian
Shareholder Value. Faculty of Business and Accountancy, University of Malaya,
March 2005.

27. Sisaye, S. (1998). An overview of the social and behavioral science approaches
to management control research, Behavioral Research in Accounting, Vol. 10,
(Supplement), pp. 11-26.
28. Tang Paing Paing (2006). Mergers & Acquisitions of Malaysian Public Listed
Company - A case study on Johor Port Berhad. Faculty of Business and
Accountancy, University of Malaya, April 2006.

29. Whysall, P. (2001). Wal-Marts Takeover of Asda: What The Papers Said. British
Food Journal, Vol. 103, No. 10, pp. 729-743.

30. Weber, Y. (1996). Corporate Culture Fit and Performance in Mergers and
Acquisitions. Human Relations, Vol. 49, No. 9, pp. 1181-1202.


1. AMB Master Prospectus (2007)

2. Andersen Consulting and The Malaysian Insurance Institute. (1999). A Practical

Approach to Mergers And Acquisitions in The Financial Services Industry With
a focus on Banking and Insurance.
3. Arzac, E.R. (2005). Valuation for Mergers, Buyouts and Restructuring, John
Wiley & Sons, Inc. NJ.
4. BenDaniel, D. J., and Rosenbloom A., H. (1998). International M&A, Joint
Ventures & Beyond: Doing The Deal. John Wiley & Sons, Inc.
5. Damodaran, A. (2006). Valuation. John Wiley & Sons, Inc. NJ.


6. Evans, F.C. and Bishop, D.M (2001). Valuation for M&A: Building Value in
Private Companies. John Wiley & Sons, Inc.

7. Feldman, S.J (2005). Principles of Private Firm Valuation. John Wiley & Sons,

8. Gaughan, P. A. (2005). Mergers: What Can Go Wrong and How to Prevent It.
John Wiley & Sons, Inc.

9. Grinblatt, M. and Titman, S. (2004). Financial Markets and Corporate Strategy.

The McGraw-Hill Companies, Inc.

10. Haspeslagh, P.C and Jemison, D.B. (1991). Managing Acquisitions. The Free
Press, New York, N.Y.
11. Ross, S.A., Westerfield, R.W. & Jaffe, J. (2005). Corporate Finance, McGrawHilss/Irwin.: New York.

12. Thompson, Jr, A. A., Strickland III, A. J., Gamble, J. E. (2007). Crafting and
Executing Strategy. The Quest for Competitive Advantage. Concepts and Cases.
(15th ed.). McGraw-Hill.

13. Weston, J.F., Mitchell M.L., Mulherin J.H. (2004). Takeovers, Restructuring and
Corporate Governance. (4th ed.). Pearson Educational International.

14. Williams, J.R., Haka, S.F. & Bettner, M.S. (2005). Financial & Managerial
Accounting: The Basis Fro Business Decisions. McGraw-Hilss/Irwin. NY.



Firm Newsletter, Journal and Report:

1. (The) American Public Power Association. (2005). The Post Merger Experience.
Washington D.C.

2. (The) Association for Corporate Growth. (2007). Mergers & Acquisition: The
Dealmakers Journal, Vol. 42, No. 7.

3. Brokers Report, Research Technology and Analysis Department, Permodalan

Nasional Berhad.

4. Chanmugam, R., Shill, W.E. and Mann, D. (2005). Mergers & Acquisitions:
Mastering Te Art of Value-Capture in M&A. Accenture, Outlook 2005, No. 1.

5. Cools, K., Gell, J. and Roos, A. (2005). Successful M&A: The Method in the
Madness BCG Report. (The) Boston Consulting Group Inc. Boston, M.A.

6. Cools, K., Gell, J., Kengelbach, J. and Roos, A. (2007). The Brave New World of
M&A: How to Create Value from Mergers and Acquisitions. BCG Report. (The)
Boston Consulting Group Inc. Boston, M.A.

7. Hansson, T, Neilson, G. and Belin, S. (2001). Airline Merger Integration: Takeoff

Checklist. Booz Allen & Hamilton Inc. Quarterly Journal 01/02.

8. Hendrickson, J. (2003) Value Creation in Uncertain Times. Accenture Executive

Survey: Is M&A a Value-Creation Vehicle?. Mergers and Acquisitions Study.

9. Nasrallah, K. (2008). Post Merger Integration. Deloitte & Touche LLP and
Affiliated Entities. Paperweek.


10. PricewaterhouseCoopers (2007). PwC Alert, Issue No. 57, March 2007, PP


Conference Material:

1. Taneja, S., Yap, K. and Heng, G. (2007), Asian Asset Management Trends:
Opportunities in a Growth Market. Federation of Malaysian Unit Trust Managers
(FMUTM). Boston: Cerulli Associates, Inc.



1. AMB website -

2. ASNB website -

3. Bursa Malaysia

4. Investopedia

5. Malaysian Investor -

6. Malaysian Rating Corporation Berhad

7. Permodalan Malaysia Berhad

8. Rating Agency of Malaysia

9. Securities Commission






What are the objectives of the takeover? What role was the takeover of AMB expected to
a. Copy of Board Directors resolution on the takeover decision


What motivates ASNB to acquire AMB?

a. Growth/expansion
b. Penetration into new market segment (institutional investors, corporate clients
c. Market positioning to establish presence in foreign markets and strengthen
position in domestic market.
d. Brand reputation
e. Product Integration

To meet customers demands for a wide range of services; strengthens

distribution systems

g. To apply a broad range of capabilities and managerial skills in new areas


On what basis that AMB was selected as potential target?

a. Why AMB?
b. What do you foresee when deciding to purchase AMB?
c. Any value estimation analysis or any other analysis done prior to takeover?
d. Details on due diligence procedures
e. The use of external consultant for advice


How was the merger initiated?

a. How long the bidding process went on?
b. Timeline of the bidding process
c. Who are the parties involved in the bidding process.
d. Who are the parties involved underwriter, investment banks.

e. Any models of takeover adopted? eg. Winners Curse, Bidder Costs, Sellers


Which other potential suitors prior to AMBs selection?


Any specific methods of approaching the target?

a. Direct Approach (meeting with the mgmt of the target organization for the sole
purpose of discussing a potential alliance or non-hostile merger/ acquisition; preparing
for a potential hostile bid in case the non-hostile, direct approach fails)

b. Indirect Approach (start talking with mgmt abt licensing, alliances and then
expanding discussions to encompass a potential M&A)

White Knight Approach (continuing to perform in-depth due diligence on the

target, but not approach the target until a potential acquirer puts the company into play;
enabling acquisition to be viewed as a positive option once the target organization
realizes it cannot stay independent)


How pricing for target was determined? (Determinants for the acquisition price)
a. Acquisition price basis of price determination
b. Any estimation of takeover price and return done prior to merger?
c. Paid at discounted price or premium?


Settlement for the purchase consideration?

a. Cash settlement?
b. Shares transfers?


Financing for the takeover?

a. Internal or External Financing
b. Determination of financing instrument used
c. The post-takeover capital structure determination


How acquisition cost is apportioned over the expected gestation period (cost



What are the new shared objectives upon takeover?

a. Will it helps to define strategic, end-state results in concrete terms, builds and
establishes a common vision and provides a bridge between strategy and
operations for the design of the operations plan.


Achievement of takeover objective?

a. In line with corporate strategy objective, initial purpose for the takeover
b. Business Model what are the challenges in integrating the business model of
the two entities?
c. Any newly combined/ integrated Business Model?


Was there any integration planning team being established to integrate operations, human
resources and other core activities of the new entity?
a. The integration plan covers map and work plans for the integration process and
functions of the two organizations.
b. Cost/ benefit analysis whether the cost of M&A exceeds the benefit.


What other direct/indirect benefits expected from the takeover?


What is your takeover implementation strategy?

a. Consolidation of core activities HR, Marketing, Operations, Finance and
Accounting, Portfolio Management and Information System (IS)
b. If not fully consolidated, when is the target date for full implementation
c. Or any other implementation strategy?


What are the companys strategies to enhance value?

a. Increase size in key market
b. Expand geographically by leveraging across a broader market area
c. Increase depth of pipeline by placing new products in pipeline


Resource planning post-merger?

a. Consolidation of operational functions
b. Staff planning, HR Benefit Program


c. System consolidation


What was the feedback received from customer upon the takeover?
a. High/ Low Subscription/ Redemption Rates
b. Customer Feedback/ No. of complaints received
c. Areas of complaints


Satisfaction over the takeover?

a. Has the management achieved the objective of the takeover?
b. Has the takeover created synergy for the company?


How do you monitor the realization of value post-takeover?

a. Valuation method used to value the takeover
b. The expected payback or value realization from the takeover


How will the market respond to the organizations action? i.e this takeover?
a. The market must see the logic in the move and results when promised; the bigger
the price paid, the higher the expectations for return.


How will other market players respond to the takeover?

What are the on-going business processes/ integration processes that management undertake
currently? the progress so far upon the takeover?



Credit Spread of Different Investment Grade Corporate Bonds


Historical MGS Returns



Historical KLCI Returns

Source: Datastream











Net Annual Unit Trust Sales