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The Dichotomy Of M&A Regulations
Malaysia Perspective | 11 June 2010

Written by Xia Guo Wen

Whenever a law enforcement agency, regulatory agency or even a government intends to implement new regulations, it is commendable of them to be willing to hear the people out and gather the views of industry players.‬‪owever, it is not enough to just listen to these views, because the most important point is how to amend the regulations while taking into account the feedback collected and how to strike a balance between pending to the desires of the ground and the initial intention of the authorities.‬

I‪n addition, the views expressed by individuals or agencies are more often biased to their position, perspective, or even interest. Therefore, when the governmental or regulatory agencies assess these views, they need to critically evaluate and strike a balance between these factors.‬‪

Recently, the Securities Commission Malaysia (SC) proposed to make amendments to the regulations relating to corporate privatization through disposal of assets, and it received strong feedback from both sides of the camp, with proponents loudly applauding the move while opponents riling in scathing criticism.‬

U‪nder the proposal, the SC plans to raise the approval threshold to divest all or the bulk of assets, from a simple majority (50%) of shareholders attending the AGM to more than 50% of the shareholders attending the AGM and representing at least 75% of total equities.‬‪

In the midst of this exercise, Nasir, the owner of Malaysia’s largest investment banking group CIMB, fired the first salvo, alleging that the proposed new regulations will result in greatly reduced M&A activities, as the approval threshold is too high to interest any deals.‬‪e added that the market needs a framework that protects the interests of small shareholders as well as facilitates transactions to take place; the new legislation would set up an unrealistic roadblock that could greatly reduce M&A activities.‬‪n his parting shot, Nasir also questioned, “What benefits will this measure bring to the country or the capital market?”‬‪

It is clear that Nasir is speaking from the position of an investment banker, since a more stringent M&A regulation means fewer mergers and acquisitions, and investment banks that subsist on providing consultancy services to M&A deals would be out of business, or at best forced to compete in a greatly more competitive environment. It is therefore very predictable for them to voice their displeasure so strongly.‬‪

On the other hand, the President of the Investors Association, Lim Hua Cheng lauded the Commission’s move and agreed that only through strict regulations can the interests of minority shareholders be more effectively protected.‬‪

He added that currently M&A activities often neglected the interests of small shareholders.‬‪

Standing somewhere in between Nasir and Lim Hua Cheng is the reconciliatory view that feels that the new M&A regulation must take into account the interests of the minority shareholders while promoting a flexible capital market.‬‪

Some even feel that the current threshold of a simple majority of 50% plus one share is indeed too low, while the proposed 75% is too high and too stringent, that the SC should seek a sweet spot between these two figures.‬‪f course, the Commission’s proposed new regulation has yet to be finalized. After collecting the responses following Nasir’s opening shots, the Commission may fine-tune the proposal. As to finding the sweet spot, that is a test of the Commission’s expertise and wisdom.‬

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