UMW likely to stand firm

> Auto group expected to maintain offer price for MBM Resources even if another bidder emerges

PETALING JAYA: UMW Holdings Bhd is likely to stand firm on its offer price for MBM Resources Bhd even in the event of another contender for the deal, based on takeaways from its analyst briefing.

Analysts have said UMW’s offer price of RM2.56 per share for MBM is unattractive and that the minority shareholders should reject the offer.

However, MIDF Research said UMW has the advantage given that it is an existing partner of Perodua which gives it the first right of refusal should there be a third party offer; the existing Japanese partners in Perodua will have to agree if a new shareholder is to come into Perodua given the eventual business partnership; and the scarcity of buyers as this involves a stake in the national carmaker.

“Having said that, this is a business transaction and naturally UMW will not put out the highest offer the first round neither would it divulge its intention to raise offers,” it said.

Meanwhile, UMW does not rule out the possibility of disposing of parts of MBM’s businesses if the take over exercise is successful.

However, MIDF Research said this is mainly to avoid conflict of interests particularly in the distribution/ dealership units, rather than engaging in a corporate raider-style buy-and-break up strategy.

“In fact, we would not be surprised if an offer is made to sell back parts of MBM to members of MBM’s current major shareholder.”

The research house said at this point, it is likely that UMW will not consolidate Perodua even if it reaches 70.6% ownership.

“UMW and other shareholders are bound by the original Perodua shareholders agreement, which gives equal rights to the Japanese partners (i.e. Daihatsu Motor/Mitsui), which means Perodua will likely remain equity accounted in UMW’s books.

“Furthermore, the Japanese parties are in control of Perodua manufacturing while the Malaysian partners are in control of sales and distribution.”

UMW will be exercising a right issue of RM1.1 billion to fund its privatisation plan for MBM in addition to seeking a controlling stake in Perodua.

MIDF Research maintained a “buy” call on UMW with an unchanged price target of RM7.11, citing that this would be a good deal if it is successful given UMW’s potentially cheap entry into MBM.