MERGERS and acquisitions (M&As) are recognised as transformative events in the corporate world, reshaping industries, creating synergies, and often sparking significant changes within the companies involved.
They can also lead to new opportunities, competitive advantages, and expanded market reach.
One such impactful M&A is Sime Darby Bhd’s acquisition of UMW Holdings Bhd, a move that has sent ripples across Malaysia’s automotive and industrial sectors.
It cost Sime Darby RM5.8bil to buy all the shares in UMW. The exercise involved acquiring a 61.18% stake in UMW from Permodalan Nasional Bhd for RM3.57bil based on an offer price of RM5 per share, and a corresponding mandatory general offer to minority shareholders at the same offer price.
Sime Darby’s motive for the acquisition was clear: to focus on its core motor and industrial businesses and to strengthen its local presence.
UMW’s extensive portfolio in automotive and industrial heavy equipment businesses, coupled with its significant revenue from Malaysia, aligned perfectly with Sime Darby’s strategic vision.
Following the acquisition, Sime Darby appointed Mustamir Mohamad as the managing director of UMW. Previously the chief financial officer for Sime Darby, Mustamir brings a deep understanding of the conglomerate’s financial and strategic operations to his new role.
Integrating operations
Six months into his new role, Mustamir steps into the spotlight and tells StarBizWeek that “the integration process is smooth so far”, referring to the group’s operations post-merger. He, however, acknowledges that there is much more that needs to be done.
Despite the months that have passed since the deal was finalised, UMW is being integrated into Sime Darby with the status of a “third core” division.
“We (Sime Darby and UMW) complement each other across the brand portfolio and automotive value chain,” Mustamir explains in his first interview with the media, emphasising the strategic fit of the acquisition.
However, Mustamir notes that a key part of the integration is maintaining and nurturing relationships with key Japanese partners such as Toyota Motor Corp.
Also as part of the integration process, Mustamir says UMW is harmonising the financial year-end in line with Sime Darby, scheduled for completion this June.
He also highlights a significant logistical change, involving the relocation of UMW’s headquarters staff to Menara Sime Darby in Petaling Jaya, by March next year.
“Some roles have already transitioned under Sime Darby, and we have conducted several town halls as part of our people-engagement strategy,” Mustamir explains.
Addressing concerns about job security, he assures employees that any optimisation of headcount would be approached thoughtfully.
“At this point, it is premature to discuss final headcount figures. Business operations will continue as usual,” he says.
Moving forward
Looking ahead, Mustamir outlines plans to streamline UMW’s operations, focusing on its core strengths in the automotive and industrial-equipment sectors, aligning with the vision of its parent company.
UMW holds a dominant 55% market share in the Malaysian automotive market, with brands like Perodua and Toyota.
It also manages distribution of heavy equipment for brands such as Komatsu and Toyota Industries Corp (Tico) forklifts, while its manufacturing and engineering division specialises in Kayaba auto parts, distributing suspension and shock absorbers to 39 countries.
Additionally, UMW operates a lubricant business blending oils for global brands like Repsol and Pennzoil, as well as the local brand, Grantt.
In aerospace, UMW serves as a Tier-1 supplier for Rolls-Royce, manufacturing fan cases for Trent 1000 and 7000 aircraft engines.
The company has repurposed its land bank into an 861-acre industrial park, with 200 acres currently remaining for sale as individual plots.
Mustamir reveals the major planned move for 2024 is the divestment of Komatsu.
This decision aims to resolve brand competition within the enlarged group’s heavy-equipment businesses and prioritise Sime Darby’s long-standing relationship with Caterpillar.
“Our relationship with Caterpillar dates back significantly, and its contribution to our bottom line is substantial,” Mustamir explains.
As of Dec 31, 2023, UMW’s Komatsu unit’s contribution to profit before interest and tax (PBIT) is around RM70mil, Mustamir says.
In comparison, for the financial year ended June 30, 2023 (FY23), Sime Darby reported RM1.05bil in PBIT from its industrial segment.
“Nevertheless, we are confident of replacing Komatsu’s contribution, as we grow UMW in the future,” he stresses.
“We are currently in the process of conducting a thorough review to examine the details, and we are not rushing to divest businesses,” he adds.
In 2018, UMW subsidiary UMW Corp Sdn Bhd (UMWC) formed a joint venture with Komatsu Ltd (Japan) to consolidate its heavy equipment subsidiaries across Malaysia, Brunei, Myanmar, Papua New Guinea, and Singapore.
The partnership involved selling a 26% stake to Komatsu for RM133.9mil, with UMWC retaining a 74% shareholding under a joint-venture agreement.
Mustamir also shares plans to strengthen UMW’s automotive distributorship and after-sales services, with a particular focus on enhancing the partnership with Toyota.
He highlights the breadth of Sime Darby’s automotive portfolio following the acquisition of UMW, which now spans from entry-level to super-luxury segments.
Historically, Sime Darby has primarily operated in the midstream and downstream segments of the automotive industry, which include distribution, retail and after-sales services, he says.
However, with UMW’s inclusion, the group has now extended its reach upstream to encompass engineering and manufacturing capabilities.
In the context of Toyota’s operations in Malaysia, Mustamir notes that currently retail and after-sales services are managed by independent third-party dealers.
He sees the setup as an opportunity for Sime Darby Motors or UMW to expand into Toyota retail and after-sales services in the future.
Enhancing presence, capabilities
UMW’s strong market presence, particularly in the automotive sector, is a significant asset for Sime Darby.
With Perodua and Toyota vehicles holding a combined 55% market share in Malaysia, the integration would bolster Sime Darby’s automotive portfolio.
“We now have a complete presence across the auto portfolio, from entry-level to super-luxury,” Mustamir notes, emphasising the group’s comprehensive approach to the automotive value chain.
The acquisition nearly doubles Sime Darby’s talent pool in Malaysia, from 6,626 to 12,298 employees, enhancing its operational capabilities.
The expansion aligns with Sime Darby’s strategy to strengthen its position in Malaysia, now the largest revenue contributor to the group at 38%, up from 12% before the acquisition.
Mustamir is optimistic about the outlook for the automotive market despite potential challenges.
The Malaysian Automotive Association forecasts a total industry volume (TIV) of 740,000 units for 2024, down from a TIV of close to 800,000 in 2023.
However, Mustamir says the association may revise their forecast in the second half of 2024, owing to the strong car sales in the first quarter.
“We are quite optimistic about Perodua sales, and there is no sign of people slowing down in buying cars,” he says.
However, the market faces challenges from China-based electric vehicle (EV) manufacturers, which could shift consumer preferences away from traditional internal combustion engine (ICE) vehicles.
“It is not competition per se, but as more people are interested in buying EVs, the market share for ICE cars may be affected,” Mustamir acknowledges.
Essentially, as UMW integrates into Sime Darby’s structure, the focus remains on maintaining strong relationships with key partners, optimising operations, and exploring new market opportunities. With strategic plans in place and a clear vision for the future, UMW is poised to continue its success under Sime Darby’s leadership.
UMW marked its first full-quarter contribution to Sime Darby for the latter’s third quarter (3Q) ended March 31, 2024.
During the period under review, Sime Darby recorded a net profit of RM340mil, up from RM240mil in 3Q23, translating to an increase in earnings per share to five sen from 3.5 sen previously. The group reported revenue of RM18.84bil in 3Q24 against RM11.53bil in 3Q23.
All Comments