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Case Study Summary for The Mega Merger of Sime

Darby Bhd

Case Study Summary for The Mega Merger of Sime Darby Bhd,
Golden Hope Bhd and Guthrie Bhd

Background
In March 2007, the Vice President of Sime Darby Bhd evaluated a
proposal for mega merger of Sime Darby, Golden Hope Bhd and Guthrie
Bhd.
All the three listed companies are in the plantation sector controlled by
Permodalan National Berhad.
Special Purpose Vehicle (SPV) for this merger is Synergy Drive Sdn Bhd.
This SPV is set up to facilitate the merger of the Golden Hope Bhd,
Guthrie Bhd and Sime Darby Bhd.
With the completion of the merger the three companies the group will
comprise of the businesses, namely plantations, property, motor, heavy
equipment and energy and utilities.

Case Summary
The merger it will give the group the competitive strengths as follows:
o To grow further the upstream and downstream sectors
o To optimise on cost and revenue synergies
o To value-add further to the palm-oil business
o To focus on enhancing technology for the industry (research and
development)

The challenges that will be faced by Synergy Drive as a result of the


merger were as follows:
o Challenges to meet the corporate and business strategy:
Achievement to meet the KPI financial indicators e.g ROA, ROE
Improvement in corporate ratings
Growth
o Challenges to meet national agenda
o Challenges to meet globalisation and borderless world
Analysis of Merger

The analysis of the merger was performed using the Market Multiple
Analysis that is by multiplying its earnings per share by the
price/earnings (P/E) ratio which is called a multiple.
From the pre merger analysis shown in Exhibit 1 below, the valuation by
CIMB and offer by Synergy Drive Sdn Bhd was considered to be valid
and fair. The market price per share (in bracket) are those offered by the
respective participating company which were quite reasonable from the
price analysed and valued using the Market Multiple Analysis.

Conclusions
A further analysis was performed to find out if the merger was
successful. This was analysed by using the Financial Analysis method
as shown in Exhibit 2. A pre and post merger analysis was conducted
using the Financial Analysis method by finding out the Liquidity,
Profitability and Debt Management ratios. The pre merger 2006 financial
statements was compared with the pro forma post merger 2007 financial
statement. Then the pro forma post merger 2007 financial statement was
compared with the actual post merger financial statement of Sime Darby
for 2008 to assess for the success of the merger.
The success of the post merger was again further assessed by using the
Market Multiple Analysis as per shown in Exhibit 3.
From the tables show in both Exhibit 2 and 3 it can be concluded that
the mega merger of Sime Darby Bhd, Golden Hope Bhd and Guthrie
Bhd was a successful merger.

Exhibit 1 - The Pre Merger Analysis


PRE MERGER Sime Darby Golden Hope Guthrie
Earnings After Tax (EAT) RM1,203.1 RM269.08 RM605.46
Million Million Million
No of Shares RM2431.40 RM1,432.49 RM1,006.59
Million Million Million
EPS (Basic) 0.461 0.422 0.281
P/E Ratio (Times) 12.58 9.86 13.88

Market Price Per Share RM5.8 RM4.16 RM3.9


(MPS) (RM6.46) (RM5.46) (RM4.27)
Total Market Value RM15,134.99 RM2,653.11 RM8,403.82
(N*MPS) OR (EAT*P/E million million million
RATIO)

Exhibit 2 - Comparison between Pre Merger and Post Merger


Financial Ratios for Sime Darby Bhd Golden Hope Bhd and Guthrie
Bhd.
Pre Merger Pre Merger Pre Merger Post Merger Actual
Sime Darby Golden Hope Guthrie (Pro Forma) (after merger)
2008

Liquidity:
CR: CA/CL 1.99x 1.32x 2.23x 1.97x 3.86x

Profitability:

ROA 6.39% 3.92% 4.96% 7.68% 10.43%


ROE 12.73% 5.23% 13.87% 12.96% 17.32%
PM: NI/Sales 5.55% 6.79% 18.02% 9.59% 11.02%
BEP: EBIT/TA 9.36% 6.13% 6.92% 10.13% 14.59%

Debt Management:
Debt Ratio: TL/TA 44.15% 22.09% 46.3% 39.11% 38.27%

Exhibit 3 Post Merger Market Multiple Analysis


POST MERGER FORECASTED ACTUAL POSITION
POSITION AFTER MERGER (2008)
Earnings After RM2,706.8 Mil RM3,512.1 Mil
Tax (EAT)
(Combined Firm)
No. of Shares 6,086 Mil 5,889.7 Mil

Earning Per Share 2706.8/6,086=RM0.43 3512.1/5889.7=RM0.60


Price/Earning 12.58+9.86+13.88/3 = 9.05/59.51=15.17x
Ratio (P/E Ratio) 12.11x
(Assumption:
Average)
Market Price Per RM 5.33 RM 9.05
Share (MPS)
Total Market RM 32,779.35 RM 53,278.56
Value