Hafiz Zubir & Co.

Mergers & Acquisitions: The Differences Between Mergers and Acquisitions

In the second quarter of 2022, Malaysia’s economy has indicated an improving growth of 8.9% compared to the first quarter which was 5.0%. This improvement was due to the economic activity as Malaysia has reopened the international borders right after the breakout of pandemic. Moreover, the Securities Commission of Malaysia also has amended the Rules on Take-Overs, Mergers and Compulsory Acquisitions which has came into force on 29th December 2021 in order to increase the regulatory enforcement of insider trading and dealmaking. Merger and Acquisition has given a positive impact towards the market economy which includes business transaction and consolidation of companies locally and internationally.

However, there are some entrepreneurs and companies that do not even know the differences between the Mergers and Acquisitions before setting up a new direction of business in Malaysia. Therefore, it is important for them to distinguish first the concept of Mergers and Acquisitions for their superlative long-term business planning.

In general, Merger is a process of combination of two separate entities turning into a new single entity. The terms of Merger must be voluntary and mutually agreed between both entities in order to create a new venture. This process is usually to expand the market shares, to reach new segments and to achieve synergy. There are five types of Mergers which are: –

  1. Conglomerate = Combination of two or more entities in unrelated business activities to extend their market through merger.
  2. Congeneric = Combination of two or more entities in related business activities under the same market and sector.
  3. Market Extension = Combination of two or more entities in related business activities but different market and sector competition.
  4. Horizontal = Combination of two or more competitors that offer the same products and services to reduce higher competition among fewer potential companies.

5) Vertical = Combination of two or more entities operating at different levels of supply chain in related to the same business activities.

For instance, the merger of SapuraCrest-Kencana which was undertaken during the peak of an oil price cycle back in 2012. The process was proposed in July 2011 and had completed in May 2012 in order to acquire more oil and gas assets and enhancing their exploration works during the peak of oil cycle. At the international level, we can witness the process of merger by the companies of Grab and Uber in Southeast Asia. In 2018, Grab has acquired Uber’s Southeast Asia operations and had given 27.5% shares in the company of Grab to Uber. The CEO of Uber company, Dara Khosrowshahi then joined the Board of the Grab company.

In contrast to Acquisition, Acquisition simply means a single company purchases most or all of the other company’s shares for the purpose of gaining control of the said company. If the company purchases more than 50% shares of the said company, the company will then gain a full control towards the said company to make all corporate decisions. Common Acquisition in Malaysia is by way of share purchase and there are three types of Acquisition which are (depends on the Constitution of Company): –

  1. Complete Buy-Out = Purchasing 100% shares of other company
  2. Acquisition of Minority Stake = Purchasing not more than 49% shares of other company
  3. Acquisition of Majority Stake = Purchasing more than 51% of the shares of other company

The process of Acquisition can be seen through the Complete Buy-Out shares transaction by the company of AMMB Holdings Bhd (“AMMB”) towards MBF Cards (M) Sdn Bhd (“MBF”) in 2012. AMMB with its two subsidiary companies had purchased RM623.4 million cash under a conditional share sale agreement for the 100% acquisition of the interest and control of MBF. AMMB has fully owned the business of issuance cards, merchants and bill payments business under the licenses of Visa and MasterCard after the acquisition. Apart from that, S Capital Sdn Bhd (“SC”) has acquired from Paysys Group Holdings Sdn Bhd (“PGH”) and Rica Holdings (M) Sdn Bhd (“RH”) for RM80 million. Such acquisition was to solidify the company of SC as the first

payment solutions provider in Malaysia. This strategy was to increase the market shares in the transaction payment acquisition industry by way of complete buy-out shares transaction.

In conclusion, there are numerous types of Mergers and Acquisitions for the structuring and developing a new venture of businesses depend on each company’s plannings and objectives. Every company has a different exercise as part of its own business strategy, nevertheless every company shares the same outcome for the best interest and growth opportunity to expand the business of the company.