What is the business structure utilised by Leighton Holdings and what are its main features? How does the principle of separate legal existence apply to prevent the directors, employees and shareholders of Leighton Holdings from being personally liable to external stakeholders for the impropriety that has occurred here?

The CapitaLand group

CapitaLand's story began when DBS Land and Pidemco Land merged in November 2000. CapitaLand is one of Asia's largest real estate companies with its focus on Singapore and China. CapitaLand's listed real estate investment trusts (REITs) through its subsidiaries CapitaLand Singapore, CapitaLand China, CapitaLand Mall Asia and The Ascott Limited, are: Ascott Residence Trust, CapitaLand Commercial Trust, CapitaLand Mall Trust, CapitaLand Malaysia Trust and CapitaLand Retail China Trust1. Of CapitaLand's subsidiaries, CapitaLand Mall Asia is one of the largest shopping mall developers, owners and managers in Asia by total value of property assets and geographic reach2.

[Note: In May 2015, the CapitaLand group went through a rebranding exercise by using the common "CapitaLand" name for its REITs, trust managers and subsidiaries. For example, CapitaLand Mall Asia was previously called CapitaMalls Asia. For the remainder of this case, the old names of the CapitaLand-related entities are used.]

The listing of CMA

Lim Beng Chee had started his career in CapitaLand in various senior positions, going on to become deputy CEO of CapitaMall Trust, CEO of CapitaRetail China Trust and eventually CEO of CapitaMalls Asia (CMA) in November 20083. Subsequently, CMA sought to raise funds through a public share issue. Within a year, CMA became Singapore's biggest IPO in the last 16 years4.

Adieu to CapitaMalls Asia on the Singapore Exchange

Less than five years after it was first listed, CMA moved back towards being privatised. On 14 April 2014, its parent company CapitaLand offered to buy out CMA's remaining shareholders at S$2.22 per share5, a 4.72% premium above CMA's IPO price of S$2.126 and a 31.5% premium over the adjusted share price of S$1.79 on the previous full trading day of 11 April 20147. According to CapitaLand, the decision to take CMA private was to streamline CapitaLand's operations in the integrated projects it carried out with CMA, to unlock shareholder value and to achieve synergies8.

Appointment of the adviser

"Delistings or takeover offers present perplexing choices to minority shareholders. The advice of the company-appointed independent financial advisor is supposed to be a good guide but can end up controversial." - Robson Lee, Partner at legal firm Shook Lin & Bok9

In response to CapitaLand's offer, CMA formed an Independent Board Committee (IBC) to advise minority shareholders10. These directors bore no direct relation to anyone in CapitaLand or any of its other subsidiaries that would have rendered them incapable of providing independent opinions on the Offer. CMA also appointed Deutsche Bank AG (Singapore Branch) as its Independent Financial Adviser (IFA) in accordance with the Takeover Code, to advise the IBC by providing a professional and objective analysis on the fairness and reasonableness of any proposed offer11.

With regards to the offer price of $2.22, the IFA issued a 'fair and reasonable' opinion given that the transaction had not resulted in a change in control12. Subsequently, the IBC reviewed and concurred with the advice of the IFA.

CapitaLand's response to disgruntled shareholders

The response to CapitaLand's Offer Price was lukewarm, with shareholders dissatisfied with the small premium of the offer price over its IPO price. Furthermore, shareholders' demands for a control premium were unlikely to be met, considering how the offeror CapitaLand's controlling stake in CMA effectively discouraged potentially higher offers from competing firms13.

By 9 May 2014, the possibility of CapitaLand's privatisation of CMA seemed bleak with only a five percent increase in the total number of CMA shares acquired to date14. The Securities Investors' Association (Singapore) (SIAS) then organised a closed-door discussion between shareholders and CapitaLand's management15. Subsequently, on 16 May 2014, CapitaLand made an increased revised offer price of S$2.3516. Shareholders who had previously agreed to sell at S$2.22 per share had their price revised to the new price. The IFA again concluded that the revised offer of S$2.35 was 'fair and reasonable' on 23 May 201417.

Does fair value equate to good value for shareholders?

"The most dangerous word to minority investors is "fair"... Minority investors desire and should demand "full" value for their shares. But who is in charge of advocating, negotiating and demanding full, not just fair, value?" - Michael Dee, former regional CEO of Morgan Stanley18

The fairness of CapitaLand's offer price and the usefulness of the IFA report in CMA's delisting continued to be contentious19. Critics argued that given the inherent limitations faced by the IFA in arriving at its 'fair and reasonable' opinion, the opinion itself would unlikely be useful to minority shareholders20.

Moreover, more than four years after its public listing, the premium of the revised offer price over CMA's IPO price was only 10.8%21. Naturally, shareholders were unhappy as they were not being rewarded a risk premium for their equity investment. Given that the Straits Times Index grew by about 15%22 during the same period, the revised offer price was argued to be still clearly inferior to what other investors had received from the market during the same period.

Furthermore, the company's potential for future growth as evidenced by substantial increases in CMA's profit and equity since its IPO was not reflected in the offer price23. Some minority shareholders were also adamant that the offer price (1.26x book value) did not justify their initial investment during CMA's IPO (1.55x book value)24.

Crossing the final hurdle

CapitaLand eventually acquired a 92.7% stake in CMA, finally crossing the 90% threshold needed for CMA's delisting on 5 June 201425. An application to SGX to take CMA off the Mainboard was successfully submitted and on 17 July 2014, CapitaLand also obtained the right to acquire the remaining shares since it had reached the minimum threshold of acquiring 97.1%26 of CMA's total shares. The delisting of CMA was finalised and the company was officially removed from the SGX and The Stock Exchange of Hong Kong on 22 July 201427.

The low offer price that had led to its successful delisting could have been a result of CMA Board's ineffectiveness in protecting its minority shareholders' interests. While the directors within the IBC were independent in position, the true independence of the independent directors on CMA's board may be questionable.

A peek into CMA's Board

Despite the impressive profiles of CMA's board of directors, issues such as multiple directorships plagued the board30.

In particular, the presence of several CMA directors who also held director and senior management position(s) in CapitaLand was a major concern:

CMA Board Chairman Ng Kee Choe was also the Chairman of CapitaLand

CMA Chairman of Finance and Budget Committee Lim Ming Yan also helmed CapitaLand as Group Chief Executive Officer (CEO) and President

CMA director Lim Tse Ghow Olivier, Chair of the Corporate Disclosure Committee, was also CapitaLand's Group Deputy CEO

CMA CEO Lim Beng Chee also held a senior management position in CapitaLand

While six directors were labeled as "Independent", two of them (namely Tan Sri Amirsham A Aziz and Arfat Pannir Selvam) actually served on CapitaLand's Board concurrently as Independent Directors. Arfat Pannir Selvam was reported to have retired from CapitaLand's Board on 25 April 2014.

While the Securities Industry Council (SIC) exempted these directors from being members of the IBC, the presence of an IBC may not necessarily mean that the CMA Board is able to protect minority shareholders' interests in the deal between CMA and CapitaLand.

Revision of the offer - The big picture

"The speed with which CapitaLand raised its offer says clearly the initial offer was a lowball price and the improved offer still provides plenty of value to CapitaLand. It likely has more room to pay more to minority shareholders, even if it says it won't." - Michael Dee, former regional CEO of Morgan Stanley31

Despite CapitaLand's firm stance that the final offer price would not be revised further, a number of shareholders still felt that the offer was undervalued. At the dialogue session with CapitaLand's management, some shareholders opined that an offer price between S$2.45 and S$2.55 would have been more appropriate32. The rationale for the formulation of the revised price was also not explained in detail. The only reason explicitly mentioned was to increase the probability of success for delisting33. Many questions were left unanswered even as CMA's delisting saga came to a close.

Looking forward

"I think what is important is, we need to continue to focus on communicating very consistently and very frequently to our stakeholders. Especially in these markets now, it's very volatile, ... I think as a result stakeholders will appreciate the fact that we're open, we have a very open channel of communication with them." - Arthur Lang, CapitaLand Group CFO34

Bearing in mind CapitaLand's focus on maintaining open consistent communication with stakeholders in their corporate governance approach, one may question if there is a contradiction between what CapitaLand professes and how it handled disgruntled CMA shareholders during the delisting process. Perhaps this, among other reasons discussed above, may explain Lim Beng Chee's sudden resignation from CMA.

Furthermore, market observers noted with concern the series of resignations35 - that of CapitaLand Residential Singapore Chief Executive Wong Heang Fine, CapitaLand Deputy CEO Olivier Lim, and CMA Deputy Chief Executive Simon Ho36 - prior to and following Lim's departure, with the concern that it may be the start of a possible brain drain. Despite the promise of CMA's privatisation, the string of resignations may effectively leave CapitaLand CEO Lim Ming Yan steering an empty ship heading towards uncertain waters.