Indonesia tycoon Anthoni Salim risks rare deal defeat over valuation, governance questions

[HONG KONG] One of Indonesia's biggest tycoons, Anthoni Salim, risks a rare setback if a US$3 billion deal between companies he controls is rejected by shareholders on Friday.

Three investors in Hong Kong-listed First Pacific told Reuters they are critical of the price for the deal, which would see its subsidiary Indofood CBP (ICBP), best known for the Indomie noodle brand, buy Pinehill, one of Indomie's distributors and manufacturers, for US$3 billion.

Mr Salim, Indonesia's sixth-richest man according to Forbes, owns 51 per cent of Pinehill and also holds 44.3 per cent of First Pacific's shares, according to corporate filings. ICBP's 2019 annual report says Mr Salim controls First Pacific.

Under Hong Kong related-party rules, he and his associates do not count as independent and cannot vote on Friday. The deal needs a simple majority to pass.

"I think it will be a challenge to have this approved," said Gerardo Zamorano, a director at Brandes Investment Group, which owns 8 per cent of First Pacific.

"From a strategic perspective we believe Pinehill is an attractive asset... But you have a question of valuation, and then you have a question of process and governance, which at the Indonesian level we think there is room for improvement."

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Mr Zamorano declined to say how Brandes would vote, citing compliance rules.

Another US-based First Pacific shareholder said the deal over-valued Pinehill by as much as US$1 billion partly because it compared valuations with more valuable South-east Asian companies as well as from the Middle East and Africa, where Pinehill primarily operates.

The shareholder declined to be identified because of the sensitivity of the situation.

Influential proxy adviser ISS said there were "some merits" to the deal but advised First Pacific shareholders to vote it down, saying Indonesia's weaker voting rules would "amplify the interest of related parties over the transaction".

Those in favour of the deal said it could help improve ICBP's financial performance.

Indonesian rules do not automatically block related parties from voting. ICBP is 80 per cent owned by Indofood, which is controlled by First Pacific.

ICBP's shareholder vote, scheduled for Wednesday, was postponed because Indonesia's financial regulator said it needed to give shareholders additional information, according to announcements in local newspapers.

Such interventions from the regulator are unusual.

"The question is whether there would be a difference in price if ICBP had to convince their minorities," said Mr Zamorano.

Independent valuations cited by ICBP to its shareholders were in line with and higher than the eventual price tag.

Chris Leahy, founder of corporate advisory firm Blackpeak, said the valuation seemed high but not shockingly so.

"This is a really good example of how weak the related party transaction rules are in Indonesia," he said.

A spokesperson for First Pacific directed Reuters to a letter recommending the transaction by the independent financial adviser to the independent shareholders. ICBP did not respond to a request for comment.

A spokesperson for Axton Salim, Anthoni's son and a director of ICBP and also First Pacific, declined to comment. Mr Anthoni Salim could not be reached for comment.

REUTERS