Sime Darby to drive, RM31b merged entity?

By Rajan Moses, Business Times

December 2 2006

WHEN Sime Darby Bhd, Golden Hope Plantations Bhd and Guthrie Bhd are merged, the combined entity's profile is set to look more or less less like an enlarged version of Sime Darby.

And talk is rife that the initials SD for Synergy Drive Sdn Bhd, which aims to merge the three companies into the world's biggest oil palm company, may actually be a forerunner or a code name for Sime Darby.

The implication is that Sime Darby may eventually be charged with driving the RM31.4 billion merged entity, given its global branding, illustrious 96-year history, sheer size, efficiencies and strong financial standing.

Sime Darby's chief executive Datuk Ahmad Zubir Murshid, who is passionate about his company's premier plantation business, side-steps the issue.

"Palm oil is our jewel in the crown (for Malaysia and Sime Darby)," he said. "There are only a few countries in the world with oil underground and oil over the ground ... and Malaysia is lucky to be one of them.

"If we can corner the world in one commodity, we can do it with palm oil. We lost it in tin and rubber when we were the world's top producer," he told Business Times. "This merger is a means to achieve this."

Zubir looks back to history and the future for his vision of how the merged entity should operate.

He yearns for a return to the greatness Sime Darby achieved in Asia and the world in the past. Like in Hong Kong during its early presence there alongside famous names like Jardines.

A merged Malaysian plantation giant would become the top provider of the world's most consumed edible oil. And if it went into various alliances in populous and strategically important countries such as Indonesia, China and India, then its value and power would grow, he said.

At home, the entity will clip unnecessary competition between the three, enable the more efficient to uplift the less efficient, lead to discovery of new economies of scale that will cut costs all round and raise profitability, he added.

Zubir wants a revolution to take place in the palm oil industry with the merger.

One of the biggest challenges facing palm oil is what he labels as the false accusation that planting the edible oil damages forests.

"This is totally untrue. If you plant oil palm, it has a life cycle of 30 years and that means you have a forest for 30 years once the trees are planted," he said.

Malaysia should take the lead in fostering agro tourism to counter the mainly Western environmentalist propoganda via the setting up of sanctuaries for endangered animal species in forests, he said.

"We should also take Indonesia as a serious partner in palm oil rather than as a competitor. It is after all the second leading producer in the world and it has land."

He even advocates giving 51:49 per cent control to the future Indonesian partners because they control vast tracts of vitally needed land to plant oil palm, something Malaysia does not have.

"It doesn't matter who controls the operation. Work on a 'prosper thy neighbour' principle. Win over the Indonesian farmers by bringing them infrastructure, etc., for letting us use the land. They will work with you."

Zubir also sees the launch of strategic downstream palm oil projects in China and India, two of the world's biggest palm oil consumers, as another way for a Malaysian plantation giant to retain and expand world leadership in edible oils.

The Middle East offers another major opportunity and the partner in the merged entity with connections there could strengthen market presence in that region, he added.

Introducing more mechanisation into oil palm cultivation is another thing on his wish list. Zubir said Malaysian and Indonesian plantations still use traditional methods to plant and harvest oil palm.

"Why not find a way to bring mechanisation into harvesting and levelling hills to plant on flattened land. This way we won't have to manually harvest with knives and machines can be used to fertilise and increase plantation efficiency."