Producers of palm oil to merge

Malaysian conglomerate Sime Darby and two of its units Thursday agreed to sell their businesses, marking the first step toward a complex merger involving seven other companies that would create the world’s No. 1 palm oil producer.

The boards of Sime Darby, its 51%-owned Sime UEP Properties and 70%-owned Sime Engineering Services said they accepted an offer by Synergy Drive to buy their businesses and would ask shareholders to consider the merger plan.

The boards of the other companies also are expected to accept the proposal in the next few days, ahead of a late December deadline for their decisions.

If approved, the deal would pool 600,000 hectares of oil palm fields in Malaysia and Indonesia owned by Sime Darby, Kumpulan Guthrie, Golden Hope Plantations and their units in a new company that would be Malaysia’s fifth-biggest with a market value of more than 31 billion ringgit ($8.7 billion).

The merger, which is being pushed forward by the government, envisages Synergy Drive acquiring the assets of the three palm oil companies -- currently owned by government fund manager Permodalan Nasional -- as well as assets of their units.

The deal, the largest corporate merger in the history of Malaysia, would create an entity bigger than local industry leader IOI Corp. whose shares are worth about 22 billion ringgit, or $6.2 billion.

Some analysts, however, were cautious as the integration process would be tough due to high operating costs in Golden Hope and Kumpulan Guthrie.

Malaysia is the world’s top producer of palm oil, currently being developed as a top-tier replacement for fossil fuels.

The merger is part of efforts to galvanize the industry amid stiff competition from rival Indonesia.

Palm oil exports are Malaysia’s second-largest foreign exchange earner after electronic goods and are expected to bring in an estimated 21.7 billion ringgit this year.