Have you ever heard of a hostile takeover? Another term for it is a corporate raid to take over a company.

What Is a Hostile Takeover?

In simple terms, it is when one company attempts to acquire another company despite objections from the board of directors of the target company.

This method differs from the usual takeover known as a friendly takeover.

A hostile takeover will cause conflict between two parties. It may even lead to lawsuits. It has happened in Malaysia and abroad.

Examples of Hostile Takeovers

Have you heard of the Dawn Raid? Let me share the story so you can better understand.

Let me give you a story that is an important piece of history for Malaysia to this day.

Dawn Raid

On 7 September 1981, the London Stock Exchange (LSE) was stunned by a takeover raid on a British plantation company, Guthrie, by the Malaysian government.

The raid took only 4 hours and was led by Tun Dr Mahathir, who was the Prime Minister of Malaysia at the time.

This event occurred just 2 months after Tun took office as Prime Minister of Malaysia.

The raid became known as the Dawn Raid.

The key figures in this raid were Tun Dr Mahathir, Tun Ismail Ali, and Tan Sri Khalid Ibrahim.

Why Guthrie?

The issue with Guthrie was that the company repeatedly rejected the Malaysian government's proposal to replant rubber trees to help Malay smallholders and rubber tappers improve their income.

The British company also frequently postponed meetings with Malaysian government representatives in attempts to resolve the matter.

Additionally, the British government had also cut education subsidies for Malaysian students in the United Kingdom and raised tuition fees for foreign students.

This new regulation was limited to students from only a few countries, and Malaysia was one of them.

This action burdened 17,000 Malaysians who were studying in the UK, as they now faced significantly higher fees.

The Story of the Guthrie Takeover

Following all this, Tun Dr Mahathir and the Malaysian people felt these actions were unjust and burdensome.

As the saying goes, adding salt to injury. That is what happened when, before the education issue was even resolved, the British government rejected Malaysia's request for additional landing rights at Heathrow Airport for the national carrier, Malaysia Airlines (MAS).

It got even worse when the British supersonic aircraft Concorde violated Malaysia's international airspace in Subang while en route to Singapore.

The situation heated up further when in 1981, Guthrie sold assets to MPH — a company owned by a wealthy Malaysian citizen — without the knowledge of PNB.

PNB held a 25% stake in Guthrie at the time.

Planning the Guthrie Takeover

So Tun Dr Mahathir, together with Tun Ismail Ali and Tan Sri Khalid Ibrahim — who was an investment manager at a Malaysian government agency — planned the raid.

Tan Sri Khalid studied and devised a strategy to ensure everything went smoothly.

Tan Sri Khalid had previously worked at Barings, London — which was a financial advisory firm for Guthrie. Together with Malaysian investment experts and advisors from NM Rothschild & Sons Ltd., they were tasked with assessing whether Guthrie could be taken over and developing the strategy to execute it.

Tan Sri Khalid Ibrahim conducted research and found that approximately RM1 billion was needed to carry out the mission, and it had to be done swiftly.

The RM1 billion required was sourced from Petronas, Pernas, and Amanah Saham Nasional.

Rothschild advised Tan Sri Khalid to open a bank account in Switzerland for the share purchase payment process. This was to prevent the British from discovering their plan.

Rothschild was appointed to purchase Guthrie shares from major overseas investors, while Rowe & Pittman was appointed as the broker to buy Guthrie shares from small investors, predominantly British citizens.

To ensure the success of the raid, only a small group was directly involved.

Even the CEO of PNB was not informed of the operation. Everyone involved secured approval from share sellers before the London Stock Exchange opened.

The Guthrie Takeover Raid

When the market opened, the Malaysian government would simply announce their ownership of Guthrie — which would shock the world — and handle the paperwork.

In Malaysia, Tan Sri Khalid was tasked with managing share purchases from local companies such as Genting, BSN, and KIG — all of which held shares in Guthrie.

At the same time, Tun Ismail Ali travelled to Singapore to meet the chairman of OCBC Bank. They discussed over lunch. The discussion took a long time, and ultimately ended with disappointing news — OCBC rejected the offer.

Tun Ismail Ali immediately called Tan Sri Khalid to inform him of the bad news.

Despite the setback, Tan Sri Khalid proceeded with the plan as usual because he had already secured deals with Genting, BSN, and KIG.

In London, the two appointed firms — Rothschild and Rowe & Pittman — awaited the green light from Tan Sri Khalid.

Upon receiving the go-ahead from Tan Sri Khalid, both firms immediately carried out the purchases as planned.

Rothschild successfully persuaded M&G Investment Trust to sell 11% of its 17% stake in Guthrie.

Meanwhile, Rowe & Pittman successfully purchased 5% of shares from small investors, consisting of British citizens.

In the end, Malaysia successfully took control of Guthrie, with PNB holding 50.4% — approximately 8 million units of Guthrie shares. PNB became the largest shareholder in Guthrie.

Guthrie had finally fallen into Malaysian hands. The chairman of Guthrie, Mark Gent, only learned of the ownership change through the radio.

This event dealt a massive blow to the British.

FAQ - Hostile Takeover

1. What is a hostile takeover in the stock market?

A hostile takeover, also known as a corporate raid, is when a company takes over another company without the consent of the target company's management. It is carried out by purchasing a majority stake in the open market.

2. How does a hostile takeover happen?

A hostile takeover occurs when the acquiring party buys shares of the target company aggressively in the open market until they own a majority stake (more than 50%), thus gaining control of the company.

3. What is the most famous example of a hostile takeover in Malaysia?

The most famous example is the takeover of Guthrie by PNB Malaysia in 1981, known as the Dawn Raid. PNB successfully acquired 50.4% of Guthrie shares in just a few hours on the London Stock Exchange.

4. What is the impact of a hostile takeover on minority shareholders?

The impact on minority shareholders can be positive or negative. If the offer price is higher than the market price, they stand to profit. However, if the company does not perform well after the takeover, share prices may decline.

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Hostile Takeover - Corporate Raids in the Stock Market