Never before has Thailand's corporate flag been flown so prominently abroad, in view of recent high-profile takeovers of foreign firms by local titans such as ThaiBev and CP Group. But now, the country's largest-ever domestic takeover deal may be sending the wrong signals.
CP All's US$6.6 billion purchase of the cash-and-carry Siam Makro _ 64% owned by Dutch conglomerate SHV Holdings _ was characterised by share price gyrations that challenge prudential and regulatory standards of the Stock Exchange of Thailand.
If Thailand wants to join the big league of capital markets, with Hong Kong and Singapore as benchmarking peers and competitors, its authorities, laws and enforcement need stiff upgrading.
To be sure, the CP All-Siam Makro tie-up yields a snug strategic fit. For CP Group, which owns CP All, the buyout offers opportunities to widen marketing and distribution. It could also expand in the domestic retail industry from convenience stores to the cash-and-carry sector in Thailand's growing and increasingly consumption-driven economy that is approaching a $400 billion GDP base.
CP can further consolidate and dominate its grip on this retail niche just outside the hypermarket segment, which harbours tough competition from Big C and Tesco. The combined strengths of CP All and Siam Makro also position CP for regional expansion and benefit from the Asean Economic Community (AEC) after 2015. Although it is overhyped, the AEC still provides many opportunities for domestic firms with regionalisation outlook and wherewithal.
Even in China, where CP's foothold is longstanding, the conglomerate is likely to reap synergies in its operation of the Lotus supermarket chain. But all good strategies and synergies come at a price. Here the deal has been in murky financial territory.
Siam Makro's share price climbed nearly 60% in the year to date when the deal was announced on April 22. Yet CP All placed a hefty premium _ 40% on top of Siam Makro's preceding 20-day average share price _ on the transaction. Part of the premium may have been due to a rumoured counterbid by ThaiBev, which served to show that Thai firms are considered not so much for their strategy and vision but for their financial muscle. Such an acquisition would lack synergy and horizontal and vertical integration, but people took it seriously because of ThaiBev's big boss Charoen Sirivathanabhakdi and his massive wealth.
The era of doing business with just money and connections rather than strategy is numbered as competition from globalisation and regionalisation grows. Thai firms will have to professionalise. They can no longer act like family-owned fiefs where family wealth trumps at the expense of shareholders.
Insiders probably had prior knowledge of this thumping news on the Thai corporate scene. When the stock market reopened on April 17 after a five-day break for Songkran, Siam Makro's shares jumped 15% in one trading session.
Moreover, SHV and CP are no strangers _ Siam Makro saw the light of day as their joint venture in 1988. CP had to sell its stake during the post-1997 financial turbulence. It bought back what it owned on generous and friendly terms, not as a hostile takeover.
Some people likely knew for some time from the inside that the deal was in the works. Even as late as the Songkran long weekend, the grapevines were buzzing among privy informants in finance, banking, brokerage and legal offices.
When the SET blew the whistle and announced an investigation into Siam Makro's share price manipulation on April 25, it was well behind the curve. The Securities and Exchange Commission (SEC), Thailand's corresponding regulatory agency, will now brandish its SEC Act of 1992, which has yet to nab a big fish among Thailand's financial crooks over the years. The SEC Act is being amended to include tougher civil penalties such as fines in addition to jail terms.
A few odd lawyers and brokers have been fined here and there, but only on rare occasions.
Only a few people have been convicted for financial crimes dating to the 1997 financial crisis, and no one has served time in jail.
The legal pursuit of Siam Makro's price manipulators may also involve the politicised Department of Special Investigations, which is notorious for its partisanship in favour of the government of the day.
And then there is the police's Economic Crimes Investigations Department, where khaki-clad officers try to keep up with white-collar crimes of financial sophistication.
Thailand's appalling track record of going after the culprits of finance and banking criminality suggests the probe into Siam Makro will be stymied, stonewalled and stuck in legal morass and bureaucratic inertia. Nothing is likely come of it. If so, it would repeat an infamous pattern.
In the 1997 financial crisis, for example, a well-connected and media-blessed "takeover king" who ran a once up-and-coming Finance One into the ground amidst embezzlement and fraud was charged, but fled to bide his time in posh fashion in London. Thai authorities did not mount a vigorous extradition case to bring him back. The statute of limitations has apparently expired because he is quietly back and out and about in Bangkok.
And then there was the poster case of the late Krirkkiat Jalichandra from the 1997 financial crisis. Krirkkiat egregiously mismanaged the Bangkok Bank of Commerce and was later convicted on embezzlement and fraud and sentenced to several years in jail but managed to live out his life comfortably on the outside.
In a more recent case, a top fund manager of a public sector retirement scheme simply bought stocks with his own money and repeated the same transactions with other people's money from the fund he managed. The windfall was investigated and his employment was terminated. But he never had to fear a day behind bars.
There are many Martha Stewarts in Thailand but they always get off easier than she did. They have no fear of jail, because they know they won't end up there. In a cost-benefit analysis, insider trading is worth it in Thailand. The benefits outweigh the costs in many ways.
Until some of the big fish are caught and punished for financial criminality, investors should approach with caution. If transactions transpire in Hong Kong or Singapore, the safeguards and standards are tighter and more reliable. Around here, investors cannot have too much due diligence and information about partners and shares they are taking stakes in, owing to the convoluted and interlocking share ownership structure among leading Thai conglomerates.
It is a pity that the CP All-Siam Makro deal reeks of insider manoeuvres because it makes strategic sense and proffers much potential.
This is a tale of a good strategic merger and acquisition of an emerging-market multinational tainted by shady financing, a wasted opportunity for a Thai giant to stand as a bona fide multinational to be respected in the global league.
Pavida Pananond is an associate professor at Thammasat Business School, Thammasat University. Thitinan Pongsudhirak is associate professor at the Faculty of Political Science, Chulalongkorn University.