Bursa Malaysia General Announcement: MM-040511-62526

General Announcement
Reference No: MM-040511-62526

Submitting Merchant Bank	:	AMMERCHANT BANK BERHAD
Company Name	:	PACIFICMAS BERHAD
Stock Name	:	PACMAS
Date Announced	:	11-05-2004

Type	:	Announcement
Subject	:	PACIFICMAS BERHAD ("PACIFICMAS" OR THE "COMPANY")
		- PROPOSED ACQUISITION OF 27,100,000 ORDINARY SHARES OF RM1.00 EACH ("SHARES") REPRESENTING 51.13% OF THE ISSUED AND PAID-UP SHARE CAPITAL OF MALAYSIA & NIPPON INSURANS BERHAD ("MNIB") FROM KOPERASI ANGKATAN TENTERA MALAYSIA BERHAD ("KAT") FOR A PURCHASE CONSIDERATION TO BE SATISFIED BY CASH ("PROPOSED ACQUISITION")
		- PROPOSED ACQUISITION OF THE REMAINING 25,900,000 SHARES REPRESENTING 48.87% OF THE ISSUED AND PAID-UP SHARE CAPITAL OF MNIB NOT ALREADY HELD BY PACIFICMAS UPON COMPLETION OF THE PROPOSED ACQUISITION VIA A MANDATORY OFFER
		(COLLECTIVELY REFERRED TO AS THE "PROPOSALS")
Contents	:


1.	INTRODUCTION
	Further to the announcements by PacificMas on 21 February 2003 and 5 May 2004, AmMerchant Bank Berhad ("AmMerchant Bank") on behalf of the Board of Directors of PacificMas ("Board"), wishes to announce that on 11 May 2004 the Company and KAT executed the Conditional Share Sale Agreement ("Conditional SSA") for the proposed acquisition of 27,100,000 Shares representing 51.13% of the issued and paid-up share capital of MNIB ("Sale Shares") from KAT at a purchase consideration to be satisfied by cash.
	Upon completion of the Proposed Acquisition, PacificMas will be obligated to acquire the remaining 25,900,000 Shares representing 48.87% of the issued and paid-up share capital of MNIB ("Remaining Shares") not already held by the Company via a mandatory offer ("MO") in accordance with the Malaysian Code on Take-Overs and Mergers, 1998 ("Code").
	Based on the unaudited NTA of MNIB as at the NTA Determination Date (as defined hereunder) of RM78,443,607 before taking into consideration due diligence adjustments (if any), the indicative purchase consideration for the Proposed Acquisition is RM46,070,000 based on the indicative price per Sale Share of RM1.70 and before taking into consideration the Termination Benefit Sum (as defined hereunder).
	Further details of the Proposals are set out in the ensuing sections.

2.	DETAILS OF THE PROPOSED ACQUISITION
	2.1	Salient Terms of the Conditional SSA
		The salient terms of the Conditional SSA are as follows:
		(i)	KAT agrees to sell and PacificMas agrees to purchase the Sale Shares free from all charges, liens, security interest and encumbrances together with all rights attached/attaching or accrued/accruing from 31 March 2004 ("NTA Determination Date");
		(ii)	The price per Sale Share is determined based on 1.15 times the adjusted net tangible assets ("NTA") of MNIB, being the NTA of MNIB as at the NTA Determination Date following a due diligence exercise ("Adjusted NTA"), divided by the number of issued and paid-up shares of MNIB of 53,000,000 Shares;
		(iii)	The purchase consideration for the Sale Shares ("Purchase Consideration") payable by PacificMas to KAT shall be the price per Sale Share multiplied by the number of Sale Shares, less a sum estimated and agreed by the parties to be the sum for which MNIB will be liable to pay its employees for termination of their employment pursuant to any termination exercise or voluntary separation scheme ("Termination Benefit Sum");
		(iv)	The sale and purchase of the Sale Shares is conditional upon the fulfillment of the conditions precedent stated in the Conditional SSA ("Conditions Precedent") on or before the date falling six (6) months from the date of the Conditional SSA or such other date as may be mutually agreed upon in writing by the parties ("Cut-Off Date"); and
		(v)	If any of the Condition Precedent is not satisfied on or before the Cut-Off Date and not waived by the relevant parties, the Conditional SSA will be deemed terminated and neither of the parties will have any right or claim against the other party save in respect of any obligation under the Conditional SSA which is expressed to apply after termination and any antecedent breach of the Conditional SSA.
	2.2	Conditions Precedent
		The sale and purchase of the Sale Shares is conditional upon the fulfillment of the Conditions Precedent on or before the Cut-Off Date as follows:
		(a)	The approvals required as set out in Section 8 of this announcement below;
		(b)	PacificMas having been granted a waiver from the Securities Commission ("SC") from compliance with Section 7 Part II of the Code which prohibits appointment of any director to the board of MNIB as well as the exercise of voting rights to the Sale Shares acquired by PacificMas prior to the MO and any other waivers which PacificMas may reasonably require;
		(c)	KAT having been granted a waiver from the SC from compliance with Section 10 Part II of the Code which prohibits resignation of KAT's representatives from the board of MNIB until completion of the MO;
		(d)	the completion of the due diligence investigation and financial audit over MNIB by PacificMas and its professional legal and financial advisors and consultant and the results thereof being satisfactory to PacificMas in its sole and absolute discretion notwithstanding any matter or fact that may have been disclosed to PacificMas by KAT, MNIB and/or their respective agents in relation to MNIB;
		(e)	PacificMas being satisfied that there has been no material adverse change in the business or financial condition of MNIB between the NTA Determination Date and the date immediately following the Cut-Off Date;
		(f)	the parties having agreed to the Adjusted NTA; and
		(g)	the parties having agreed to the terms and conditions including the Termination Benefit Sum for termination of MNIB's employees either through a voluntary separation scheme or retrenchment exercise.
	2.3	Basis in Arriving at the Purchase Consideration
		The price-to-book ratio of 1.15 times the Adjusted NTA was arrived at on a willing buyer willing seller basis after arms' length negotiation between PacificMas and KAT and taking into consideration the following:
		(i)	the potential business synergies, operational and cost efficiency that can be achieved upon merger of the general insurance businesses of PIB and MNIB; and
		(ii)	the past comparative transactions and valuation of other general insurance companies in Malaysia.
		Based on the unaudited NTA of MNIB as at the NTA Determination Date of RM78,443,607 before taking into consideration due diligence adjustments (if any), the indicative purchase consideration for the Proposed Acquisition is RM46,070,000 based on the indicative price per Sale Share of RM1.70 and before taking into consideration the Termination Benefit Sum.
		There are no liabilities to be assumed by PacificMas pursuant to the Proposed Acquisition save for liabilities arising from normal ordinary course of business.
	2.4	Source of Funding and Settlement
		Subject to the approval of the SC, the Purchase Consideration will be funded entirely from the remaining cash proceeds of RM420 million from the disposal of the banking business of PacificMas (completed in 2001) which was set aside by PacificMas for future investment in new businesses (hereinafter referred to as "Proceeds from Disposal").
		Following the execution of the Conditional SSA, PacificMas has placed a deposit of RM4.5 million ("Deposit") in an escrow account operated jointly with KAT. The Deposit is currently sourced from the Company's internal funds pending the approval of the SC for the utilisation of the remaining Proceeds from Disposal for the Proposed Acquisition. The Deposit will be released, and the balance of the final purchase consideration will be payable by PacificMas, to KAT on the Completion Date (which shall be the fourteenth (14th) day falling after the unconditional date or such other date as mutually agreed by PacificMas and KAT), in accordance with the provisions of the Conditional SSA.
	2.5	Brief Information on MNIB
		MNIB was incorporated on 8 October 1973 in Malaysia under the Companies Act, 1965 as a public company limited by shares under the name of Malaysia & Nippon Insuran Berhad. It assumed its present name on 29 March 1983.
		MNIB's present authorised share capital is RM100,000,000 divided into 100,000,000 ordinary shares of RM1.00 each of which 53,000,000 ordinary shares of RM1.00 each have been issued and fully paid-up.
		The principal activity of MNIB is that of underwriting of all classes of general insurance business.
		As at the audited financial year ended 31 December 2003, the NTA of MNIB is RM77.44 million and the company recorded a net profit of RM5.35 million for the said financial year.
		Details of the directors of MNIB as at the date of this announcement are set out in Table 1. MNIB is a wholly-owned subsidiary of KAT.
	2.6	Brief Information on KAT
		KAT is a co-operative society registered in Malaysia under the Co-Operative Societies Act, 1993 on 12 November 1960. It was registered as the Federation Armed Forces Cooperative Credit and Investment Society Limited and changed to the present name on 6 July 1979.
		Its present issued members' subscription capital is RM247,231,000 and its share capital is RM12,330,000 credited as fully paid-up.
		The principal activities of KAT are in thrift and loan activities, investment holding and as an insurance agent.
		As at the date of this announcement, KAT has no substantial shareholder (holding 5% or more equity interest). Details of the directors and their shareholdings in KAT as at the date of this announcement are set out in Table 2.
		The original cost of investment of KAT's 100% equity interest in MNIB was RM52.43 million. KAT's investments in MNIB were undertaken from 21 June 1982 to 31 July 2002.

3.	DETAILS OF THE PROPOSED MO
	Upon completion of the acquisition of the Sale Shares, PacificMas will trigger an obligation under Part II of the Code to undertake a MO for the Remaining Shares (i.e. 25,900,000 Shares) representing 48.87% of the issued and paid-up share capital of MNIB not already held by the Company.
	It is the intention of PacificMas to acquire the Remaining Shares from KAT via the MO in order for it to hold 100% equity interest in MNIB for the purpose of facilitating the intended merger exercise between PIB and MNIB. Following the execution of the Conditional SSA, KAT is to provide an irrevocable and unconditional undertaking to accept the MO to be made by the Company following completion of the acquisition of the Sale Shares.
	The consideration for the MO by PacificMas will be in the form of cash at the offer price equal to the price per Sale Share. Based on the indicative price per Sale Share of RM1.70, the indicative purchase consideration for the Remaining Shares under the Proposed MO is RM44,030,000.
	The final offer price to be paid by PacificMas to acquire the Remaining Shares will be in compliance with Section 20(1) of Part V of the Code which, inter-alia, states that the offer price shall not be less than the highest price paid or agreed to be paid by PacificMas for the Sale Shares of MNIB within six months prior to the beginning of the offer period.
	Subject to SC's approval, the Proposed MO will be funded from the cash of the Proceeds from Disposal.

4.	RATIONALE FOR THE PROPOSALS
	The Proposals are in line with the PacificMas Group's plan to develop insurance as its core business, and in consonance with Bank Negara Malaysia's ("BNM") policy on industry consolidation and merger of insurance companies to meet the challenges arising from the gradual liberalisation of the insurance industry under the Financial Sector Masterplan, 2001 ("FSMP").
	It is the intention of the Company to ultimately merge the general insurance businesses of PIB, MNIB and OACM under one entity following implementation of the Proposals and the proposed restructuring of the equity and merger of the insurance business operations of the Great Eastern Holdings Limited Group and PacificMas Group.
	The proposed merger of the general insurance businesses of PIB, MNIB and OACM is expected to enhance the growth prospects and financial strength of the merged entity. In addition, the proposed merger is expected to improve the underwriting capacity, operational and cost efficiency, technical expertise and performance of the merged entity through the expansion of its market share and thus strengthening its position in the general insurance sector.

5.	RISK FACTORS
	The Board does not foresee any material risk pursuant to the Proposals except for the inherent risk factors associated with the insurance industry for which the PacificMas Group is already involved in, such as risks arising from changes in government policies/legislation and regulations affecting the general insurance sector, risks relating to changes in political, social and economic conditions, competition, business risks (including but not limited to risks of changes in agency strength and terms, adverse claims experiences, shortage in reinsurance capacity, default by reinsurers and changes in pricing and tariffs, etc.), investment risks (arising from factors such as interest rate fluctuations, and debt and equity market conditions) and certain potential risks relating to merger and integration exercises.
	No assurance can however be given that any adverse developments in such risk areas would not affect the business and/or financial performance of MNIB or the merged PIB/MNIB entity.

6.	INDUSTRY PROSPECTS
	With the improving underlying economic prospects and the more optimistic global outlook in 2004, the growth momentum of the insurance industry is expected to strengthen in tandem with the domestic economy. With increased efficiency and enhanced capability, the insurance industry should continue to support economic development with the provision of effective financial protection and risk transfer.
	While conditions remain favourable for the market as a whole, insurers are faced with increased competition due to industry consolidation as more companies complete their mergers exercise and improve their capital position. With greater sophistication in the marketing and distribution of insurance products, industry players are faced with stiff competition in terms of pricing and value added services.
	The major challenges facing the insurance industry going forward are:
	-	Increasing competition from traditional players as global trends of consolidation and specialisation create international insurers that are larger, better skilled and more focused on core areas of competence;
	-	Competition from new players such as asset managers, captive insurers (general insurance), independent financial advisers and internet players who, through disintermediating core elements of the insurance value chain, are improving product range and performance, and lowering the costs to consumers;
	-	Adapting to technological advances that have fundamentally changed the way business is conducted; and
	-	Meeting the needs of more sophisticated and more informed consumers.
	In the light of these challenges, the FSMP which is implemented during the Eighth Malaysia Plan period, will provide the framework for the development of the insurance industry. The overall objective of the FSMP is to build an efficient, effective and stable financial sector that supports both the needs of the real economy and the socio-economic objectives of the country. The aim is also to build at the core of this financial system strong domestic insurers able to provide Malaysia consumers with world-class products and services, while meeting international commitments to liberalise the sector in the medium term. This will enable the insurance industry to be financially resilient, innovative, productive and cost efficient as well as able to mobilise long-term savings, adopt international best practices and display high professional ethics and standards.
	Sources: Insurance Annual Report 2003, FSMP, Eighth Malaysia Plan 2001-2005

7.	FINANCIAL EFFECTS OF THE PROPOSALS
	7.1	Share Capital
		The Proposals will not have any effect on the share capital of the Company as it will be fully satisfied by cash.
	7.2	Earnings
		The Proposals which are expected to be completed by third quarter of 2004, will not have any material effect on the earnings of the PacificMas Group for the financial year ending 31 December 2004. However, the Proposals are expected to contribute positively to the future earnings of the Group.
		Nevertheless, there will be an amortisation of goodwill arising from the acquisition of MNIB over a period of 25 years, in line with the current accounting policy of PacificMas, which amounts to RM585,680 per annum.
	7.3	NTA
		For illustrative purposes, the proforma effects of the Proposals on the NTA of the PacificMas Group based on its latest audited consolidated accounts for the financial year ended 31 December 2003 are as set out in Table 3.
	7.4	Substantial Shareholders
		The Proposals will not have any effect on the substantial shareholders' shareholdings as it will be fully satisfied by cash.

8.	APPROVALS REQUIRED/OBTAINED
	The Proposals are subject to the following approvals being obtained:
	(i)	the MoF via BNM (which was obtained via BNM's letter dated 24 April 2004);
	(ii)	the SC;
	(iii)	the Foreign Investment Committee;
	(iv)	the shareholders of PacificMas at an EGM to be convened;
	(v)	the shareholders of KAT;
	(vi)	the relevant approvals required to be obtained by the substantial shareholders of PacificMas; and
	(vii)	all other requisite approvals as may be necessary or required to be obtained by law or any authority.

9.	DIRECTORS' AND MAJOR SHAREHOLDERS' INTEREST
	Save as disclosed below, none of the Directors or major shareholders of PacificMas or persons connected to the Directors or major shareholders of PacificMas have any interest, direct or indirect, in the Proposals:
	Directors
	Encik Sharriffudin bin Ahmad Taff is deemed interested in the Proposals as he is a nominee Director of KAT on the Board. Accordingly, he has abstained and will continue to abstain from all Board deliberation and voting at Board meetings in respect of the Proposals.
	Major shareholders
	KAT, being the vendor is also a major shareholder of PacificMas. Accordingly, KAT will abstain from exercising their voting rights at the forthcoming EGM of PacificMas to be convened to approve the relevant resolutions pertaining to the Proposals.
	Persons connected
	The abovementioned interested Director and major shareholder will ensure that all persons connected to them will abstain from exercising their voting rights in respect of their direct or indirect interest at the forthcoming EGM of PacificMas to be convened to approve the relevant resolutions pertaining to the Proposals.

10.	STATEMENT BY THE BOARD OF DIRECTORS
	With the exception of Encik Sharriffudin bin Ahmad Taff who is deemed interested in the Proposals, the Board, after careful deliberation, is of the opinion that the Proposals and the subsequent merger of the general insurance businesses of PIB and MNIB, will be in the best and long-term interest of the Company.

11.	ADVISERS
	AmMerchant Bank has been appointed as Adviser to PacificMas for the Proposals. In view that the Proposals are related party transactions under the Listing Requirements of Bursa Malaysia Securities Berhad, Aseambankers Malaysia Berhad has been appointed as the Independent Adviser for the Proposals.

12.	DEPARTURE FROM THE SC'S GUIDELINES
	The Board is not aware of any departure from the Policies and Guidelines on Issue/Offer of Securities issued by the SC, in respect of the Proposals.

13.	ESTIMATED TIMEFRAME FOR COMPLETION
	Barring any unforeseen circumstances, the Board expects the Proposals to be completed by the third quarter of 2004.

14.	DOCUMENTS FOR INSPECTION
	The Conditional SSA may be inspected at the registered office of PacificMas at Level 18 Menara Prudential, 10 Jalan Sultan Ismail, 50250 Kuala Lumpur from Monday to Friday (except public holidays) during normal business hours for a period of three (3) months from the date of this announcement.

This announcement is dated 11 May 2004.

		Attachment (Table 1, Table 2 & Table 3)

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