Opinion: JKH board is duty bound to evaluate takeover defence/restructuring

Krishan Balendra during a Bloomberg Television interview in Hong Kong. Photographer: Lam Yik Fei/Bloomberg via Getty Images

February 11, 2019 (LBO) – John Keells Holdings (JKH) and its management seem to be asleep at the wheel. Whether the board of the most important company in Sri Lanka realises it or not, their company and its shareholders are under threat.

Sri Lanka’s billion dollar stock market bellwether now has 3 shareholders who own in aggregate greater than 40% of the voting shares of the company. These three shareholders, if they collude or sell to each other, have the ability to control the company.

The three shareholders are the Captain family, Harry Jayawardena, and the Malaysian sovereign fund. The two local shareholders, Captains and Harry Jayawardena, control in excess of 30% of the company, while the Malaysians have in excess of 10%. The two local shareholders do not have a track record of creating value for minority shareholders. Shares of the companies they control have preformed far worse than if minority shareholders would have just kept their money if fixed deposits.

As the potential forces that could takeover JKH have not had a history of creating value for minority shareholders, the board of JKH is duty bound to protect the rights of all other existing shareholders by conducting a major evaluation of strategic alternatives.

The board of JKH, through its lackadaisical approach to potential takeover threats, has allowed the company to fall into its current predicament. If historical precedence is an indicator, an internal analysis of strategic alternatives is unlikely to result in the bold moves necessary for the company to preserve its independence.

As time is of the essence, the board should immediately seek outside counsel in order evaluate a course of action that is in the interest of all its existing shareholders. International investment banks and legal advisors must be retained in order to assist management in evaluating the available alternatives of restructuring and takeover defence.

If the board fails to act, they will be violating their duty to maximise shareholder value for all stock holders, and likely add JKH to the list of companies that are controlled by Sri Lanka’s oligarchs.