Year - End Special: Deal Of The Year

[Jai Dee]

YEAR-END SPECIAL: DEAL OF THE YEAR

The mother of all Thai M&A deals

In its sheer magnitude, Temasek Holdings' takeover of Shin Corp was the biggest in Thai merger-and-acquisition history - several times larger than the Bt23 billion United Overseas Bank paid recently for a majority stake in Bank of Asia, now UOB (Thai).

Bigger than the financial terms was the most complicated-ever takeover structure. It stunned the M&A industry and sparked discussions on the morality of then prime minister Thaksin Shinawatra. Growing doubts rocked the government's credibility and shook business confidence. Eventually, it led to a major political change and retrospective investigations into several issues, some of which carry deep economic and social impact.

Unlike other M&A deals, this had apparently been planned for some time, judging by the reports that Thaksin set up Ample Rich Investments in tax-haven British Virgin Islands in 1999. Ample Rich held a 10.97-per-cent stake in Shin Corp, the holding company that owns a majority stake in several telecom subsidiaries, particularly Advanced Info Service, Shin Satellite and iTV. In the subsequent years, Ample Rich's shareholding structure was changed, with Thaksin's children - Panthongtae and Pinthongta - becoming shareholders.

There was no big move until January 20, 2006, three days before Cedar Holdings and Aspen Holdings - backed by Temasek Holdings and Thai investors - announced the Bt73.3-billion takeover of Shin Corp. Ample Rich then sold its shares in Shin to Thaksin's children, who later sold the shares to Shin's buyers.

Aside from the lengthy planning the Shinawatra family did to withdraw from the telecommunications industry, the deal involved a very complicated set of manoeuvres.

Rumours of the move started in December and despite denials from Shin and Thaksin himself, three companies were established around that time specifically for the deal - Cypress Holdings, Cedar Holdings and Kularb Kaew. Igniting suspicions that some Thais involved in the deal were acting on behalf of Temasek was renowned businessman Pong Sarasin's comment on January 23 that he would hold shares in Kularb Kaew for just a short while.

Stepping in to clear the speculation was Surin Upatkoon, a Thai resident who made a fortune in Malaysia. He took over the stake from Pong and Suphadej Poonpipat in March, but that did not stop the Commerce Ministry's Business Development Department from investigating the nominee issue.

Following the investigation are attempts to revise the Foreign Business Act, which specifies the industries in which foreign shareholdings must be subject to a certain limit. The Commerce Ministry is also moving to include the telecom industry in the law.

The deal has claimed a number of casualties. Thaksin was the first, forced to dissolve parliament in February amid growing complaints that none of the members of the Shinawatra and Damapong families were taxed on their extraordinary gains. His son Panthongtae was fined by the Securities and Exchange Commission for failing to launch a tender offer when his holding in Shin exceeded the trigger point of 25 per cent. Panthongtae and Pinthongta are to be interrogated by the Assets Examination Committee.

Lending to Cedar and holding a stake in Cedar, Siam Commercial Bank came under attack for helping "the bad guys".

The biggest casualty so far, however, is Sirote Sawasdipanich, former director-general of the Revenue Department. Earlier this year, he said the transactions were legally exempt from capital gains taxes. Though lucky to hold on to the post after the political change, he was eventually fired this month for failing to collect tax from the two families.

Another big casualty could be Temasek. Since the takeover, the Shin share price has plummeted, down to Bt26.75 as of December 26, as investors are concerned about the business prospects of the company and subsidiaries, primarily iTV and AIS. On Boxing Day, the buyers' accounting loss was over Bt60 billion.

Importantly, gone with the Shinawatra family was the long-enjoyed political immunity. iTV could face a hefty fine of over Bt100 billion, which is far beyond its assets of only Bt3.7 billion as of September 30. As a result of the fine, iTV could cease to exist.

Meanwhile, AIS, which for years operated at a lower cost than other mobile-phone operators, could also be dragged on to a level playing field as the ICT Ministry moves to neutralise differences in mobile-phone concessions.

Although having the largest subscriber base of 17 million, AIS could face a tougher future, especially when arch-rival Total Access Communication moves into a more aggressive mode with the full backup of Norway's telecom giant Telenor.

With higher cost of operations amid fierce competition, AIS, though being number one, could feel like its wings clipped. As such, Shin's future will be rocked, given that 90 per cent of its revenue comes from AIS.

Under the interim government, it is also uncertain if the Transport Ministry will seek a revision in the status of Thai AirAsia. If Asia Aviation is ruled to be a nominee of Shin, and if Kularb Kaew is ruled a nominee of Temasek, that means Thai AirAsia is a foreign company which is no longer eligible for an aviation licence.

Although the deal was completed months ago, several uncertainties persist with potential repercussions for the economy.

If the Commerce Ministry rules that Kularb Kaew is Temasek's nominee, Temasek would be forced to lower its stake in Cedar, which would reduce its holding in Shin and subsidiaries. It is uncertain if other companies with foreign shareholders would be affected and how much this could further dampen foreign-investor confidence in Thailand.

It is also unclear how far the Assets Examination Committee's investigation of Shin-related issues will stretch. It would not be healthy for the economy if the committee takes personal vengeance against the Shinawatra family and reaches out to too many issues which eventually may not be substantiated. To do so would only drive away foreign investors, including Temasek, who may consider Thailand not a good place to invest.

Never before in history has a takeover deal had an impact of this scale - one that reached out to all parts of society.

Source: The Nation - 29 December 2006