I am a shareholder of the PacificMas Berhad which is listed on the main board of Bursa Malaysia and I am aggrieved that at its AGM/EGM on June 29, I failed in my attempts to obtain satisfactory answers to my queries.

The board of directors seemed to be keener to get the AGM/EGM over and done with and did not fully address my questions which included one on the acquisition of Malaysia & Nippon Insurans Berhad (MNIB).

The acquisition of MNIB involves a total funding of RM90.1 million.

During the EGM, I questioned the rational for the purchase. As a shareholder, I believe that this acquisition is not in the best interest for the following reasons.

a) Assuming that we invest this RM90.1 million in high-grade bonds, our yield will be five percent thus giving us an almost risk-free yearly income of RM4.5 million. The result of MNIB for the three months ended March 31, 2004 was RM999,000.

The extrapolated full year result comes up to RM4 million. It does not make commercial sense to acquire a company for RM90.1 million to earn a yearly profit of RM4 million thus giving a yield of 4.4 percent. Just putting the RM90.1 million in a bank would already earn this much.

b) We are paying a premium of 1.15 over Net Tangible Assets thus leading to a half million ringgit write-off yearly, thus reducing the earnings as mentioned in (a) above.

c) As mentioned in the company's circular, MNIB is having the following issues:

  • declining performance
  • declining agency force, and
  • deteriorating business volume

It does not make commercial sense to acquire a company with overall declining indices.

d) MNIB profit for 2003 was due to sale of investments and write backs. This is a one-off non-recurring scenario, which resulted in the RM5.35 million profit for 2003. Excluding the one-off items, the profit for the year 2003 is approximately RM3.5 million. As such, my conclusion is that it is not justifiable to acquire MNIB.

The board of directors of PacificMas however maintained that it was still in the best interest to acquire MNIB and did not give the shareholders any details except that it may lead to cost savings.

I was not given any answers when I requested for details on the cost savings and proof that the acquisition is in the company's best interests.

I believe that the above acquisition and restructuring are not in the best interests of the company and it is best that PacificMas returns surplus cash to its shareholders instead of playing poker with it.