This article first appeared in The Edge Malaysia Weekly on August 26, 2024 - September 1, 2024

Normally, a mandatory general offer (MGO) would not raise eyebrows. But that is not the case for South Malaysia Industries Bhd (KL:SMI), which has been embroiled in a boardroom fight that has spilled into the courtroom.

The peculiarity of the MGO in SMI’s case is because in March this year, the company had contended that subsidiaries related to Techbase Industries Bhd (KL:TECHBASE) and YB Ventures Bhd (KL:YB) had taken control of more than 33% of the company without undertaking an MGO. SMI even filed a judicial review seeking to compel the Securities Commission (SC) to make a decision on its complaint.

On the same matter, SMI shareholder Mah Sau Cheong filed a suit last month seeking damages from Techbase and SMI for not undertaking an MGO, among other things.

Honsin Apparel Sdn Bhd and HIQ Media Sdn Bhd, two subsidiaries of Techbase, had attempted to place their nominees on the board of SMI in the last 18 months but without success. The two companies cumulatively hold 16.86% in SMI.

Last week, it became clear who the friendly parties in SMI are.

In the announcement on the takeover, it said that Target 1 Sdn Bhd (Target1), which is controlled by Leong Seng Wui, had accumulated 30.67% of SMI through purchases on the open market (15.52%) and off-market trades of 15.15% in the months of May and June. Leong is an executive director of Hong Seng Consolidated Bhd (KL:HONGSENG).

The takeover announcement stated that Target1, Honsin and HIQ had entered into a “collaboration agreement” to formalise their cooperation to take control of SMI on Aug 20. The three parties hold 50.05% of SMI and launched the MGO for SMI on the same day.

The entry of Target1 into SMI is strange. Why would Leong want to take a substantial stake in a company that is already embroiled in a boardroom fight and has legal suits contending that certain shareholders were circumventing a possible MGO?

Also, from whom did Leong buy the off-market shares of 15.15%? These are questions that will linger as the SMI takeover kicks off.

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