In one of the most bizarre twists in the battle for Singapore's OUB, DBS and Goldman Sachs are to apologize for putting together a defamatory presentation book. The presentation which circulated in Europe during an international roadshow was designed to persuade investors that DBS's bid for OUB was better than UOB's.
There were red faces all-round, however, when one investor passed the presentation to UOB, which was also conducting roadshows around Europe.
The presentation contained slides which upset both OUB and UOB and was deemed by their Singapore lawyers to be defamatory in the manner in which it worded its accusations the gist of which were that while DBS was a world class bank focused on shareholder value, the UOB/OUB deal was designed to keep family control intact without regard for shareholder value.
The boards of both UOB and OUB felt they were being defamed by the document, and were upset that it was being distributed in Europe, where 17% of OUB's shares are held. Under Singapore libel law they had a good case, as the statements brought into question their fiduciary obligations and the personal integrity of the directors.
Nor were those directors without clout. A board member of UOB is Philip Yeo, the chairman of the Economic Board of Singapore, who is an extremely influential figure.
Before long, senior figures in the Singapore government were to learn of the 'problematic' nine-page roadshow presentation, and as DBS's major shareholder, were obviously aghast that such defamatory statements could get into a public document.
In the course of the past week, both DBS and its adviser, Goldman Sachs, have been in discussions with OUB and UOB, with the former pair quickly agreeing to an apology rather than face legal action.
On Monday, in a move not reckoned to be correlated with the ensuing fracas, DBS declined to raise its offer for OUB, signaling the end of its hostile bid for the bank and leaving the way open for UOB and OUB to merge.
The damaging roadshow presentation seems to have been put together after UOB was forced to disclose the details of its irrevocable bid for OUB, published on July 3.
UOB and OUB had hooked up in a friendly fashion to repel DBS's hostile bid. UOB secured irrevocables from OUB's major family shareholders (which owns 15% of the bank) and got the backing of the OUB board.
Both sides then sought to persuade other shareholders that their bids were the best. On the DBS side, it was felt that a strong offensive was justified, given how difficult negotiations with OUB had proven thus far. The nine-page presentation that circulated around Europe featured only DBS's logo and spent most of its time attacking the UOB bid. One page made references to the issue of family control, and it was this single page that proved defamatory.
The legally-problematic statements centred on the following remarks about UOB and UOB:
- "the Board and management team composed of friends and family";
- "One certainly has to applaud the UOB offer. Not for its economic sense, but for its daring; especially as this combination is designed to keep family control intact without regard for shareholder value";
- "OUB shareholders should chastise its Board and management. The controlling shareholder values 'face' over real value maximization. Should that be equally true for the other 85% that has invested hard-earned savings in the bank?";
- "Integration likely to be disrupted by decision paralysis and infighting, given the Co-presidents, Co-chairmen and a larger board".
Goldman, widely considered one of the world's best M&A houses, had clearly been put in a difficult position and particularly given its oft-repeated maxim that the client is always right. According to DBS, the blame lies not within Singapore, but at Goldman Sachs (Hong Kong). In a carefully-drafted apology from DBS published in local Singapore newspapers this morning, DSB chairman S Dhanabalan writes to UOB chairman Wee Cho Yaw, "The document was not cleared in accordance with the procedures within DBS. The document was prepared by an overseas office of Goldman Sachs."
However, Goldman bankers might well argue that in a US or UK hostile takeover, this sort of thing is par for the course.
Indeed, in hostile situations in the US, the gloves tend to come off pretty quickly. Take, for example, the contested bid for Wachovia Corp between First Union and SunTrust. In an advertisement published on July 6 in the Wall Street Journal, First Union stated among other things that SunTrust's bid would raise "serious regulatory capital concerns". In the ongoing saga at Computer Associates, strong assertions have also been the order of the day as both sides have sought to lobby shareholders through the media, with scant regard for reputations in the process.
Singapore, of course, is not the US, and the statements were not considered to be fair comment, but libels. And at a broader level, this precedent might make others think twice before going hostile. If a government-controlled bank goes hostile and commits libel in making its claims, others will clearly think twice before following a similar strategy.
On which point, S Dhanabalan says, "I would like to end off once again by apologizing unreservedly for what has happened."
DBS now says that it will send a high level team to meet the people who received the offending document or attended the roadshow presentation. Not only this, but it will also pay S$1 million to UOB to be contributed to charities and public bodies.