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Sime Darby Berhad

Sime Darby Berhad

21st Floor, Wisma Sime Darby
Jalan Raja Laut
50350 Kuala Lumpur
Malaysia
Telephone: (3) 291 4122
Fax: (3) 298 7398
Web site: http://www.simenet.com

Public Company
Incorporated:
1958 as Sime Darby Holdings Ltd.
Employees: 29,000
Sales: M$9.91 billion (US$2.61 billion) (1999)
Stock Exchanges: Kuala Lumpur
NAIC: 551112 Offices of Other Holdings Companies; 113210 Forest Nurseries and Gathering of Forest Products; 221112 Fossil Fuel Electric Power Generation; 233110 Land Subdivision and Land Development; 234930 Industrial Nonbuilding Structure Construction; 311223 Other Oilseed Processing; 325510 Paint and Coating Manufacturing; 326211 Tire Manufacturing (Except Retreading); 333415 Air-Conditioning and Warm Air Heating Equipment and Commercial and Industrial Refrigeration Equipment Manufacturing; 335222 Household Refrigerator and Home Freezer Manufacturing; 421110 Automobile and Other Motor Vehicle Wholesalers; 421810 Construction and Mining (Except Petroleum) Machinery and Equipment Wholesalers; 421830 Industrial Machinery and Equipment Wholesalers; 541330 Engineering Services; 561510 Travel Agencies; 561520 Tour Operators; 622110 General Medical and Surgical Hospitals; 713910 Golf Courses and Country Clubs

Sime Darby Berhad is the largest conglomerate in Malaysia and one of the largest in southeast Asia. Within its orbit are more than 270 operating companies in 23 countries, with its most extensive foreign operations in Hong Kong (which accounts for 25 percent of revenues), Singapore (14 percent), and Australia (11 percent). (The company generates 38 percent of its revenues domestically.) Its broadly diversified activities include a wide range of industries, with the core businesses being plantations (including oil palm and the companys original business, rubber), tire manufacturing, heavy equipment and motor vehicle distribution, property development, power generation, and engineering services. Other business operations include paint manufacturing, refrigeration product manufacturing, travel and tourism services, hospitals, and golf courses.

Focus on Rubber in the Early Years

The moniker Sime Darby was contrived in 1910 from the names of two European business partners: William Sime and Henry Darby. William Sime, a traveler and adventurer from Scotland, ventured to Malaysia when he was in his late 30s. Natural rubbersynthetic rubber was still being developedhad just been introduced to that country from Brazil. Sime and other entrepreneurs at the time recognized that the climate of Malaysias jungle region was similar to that of Brazils. There-fore, rubber could just as easily be grown in that country and sold not only in Malaysia but throughout southeast Asia and the world. Sime suggested to his friend Henry Darby, an English banker, that they start a rubber plantation there. Darby agreed to help fund the effort and together they formed Sime, Darby & Co., Ltd.

Sime Darby initially encountered stiff opposition to its venture from locals, who were wary of outsiders coming in to operate a plantation in Malacca. To quell their contempt, Sime and Darby forged friendships with several members of the Chinese business community. The most notable of those business leaders was Tun Tan Cheng Lock. Lock would later lead the Malaya independence movementin the 1990s, the Malay Peninsula was made up of parts of Burma, Thailand, and Malaysia. Among other distinctions, Lock ultimately was crowned a Knight Commander of the British Empire and also received Malaysias highest award, which is called Tun. With the help of Lock and other business leaders, Sime and Darby were able to procure about 500 acres of rubber plantations in the dense jungles of Malacca.

Rubber markets surged during the 1910s and Sime Darby enjoyed healthy sales. The company expanded, becoming a manager for owners of other plantations and then moving into the trading end of the industry. Sime set up a branch office in Singapore in 1915 and shortly thereafter established a marketing office in London. Demand for rubber eventually outstripped Sime Darbys production capacity, and by the late 1920s the company found it necessary to clear more jungle. To do so, Sime Darby purchased Sarawak Trading Company in 1929. Sarawak (later renamed Tractors Malaysia) held the franchise for Caterpillar heavy earthmoving equipment. That important purchase signaled Sime Darbys expansion into the heavy equipment business, which would eventually become a major component of its expansive network. In 1936 the companys head office was relocated from Malacca to Singapore.

Sime Darby made a fortune in the global rubber industry during the 1920s and 1930s. Growth in that industry began to fade, however, as natural rubber was gradually supplanted by synthetic rubber. Sales of natural rubber boomed during World War II as warring nations purchased all available supplies. The war, however, also led to significant advancements in synthetic rubber technology.

Diversification and Malaysianization in the 1960s and 1970s

By the 1960s, then, Sime Darby Holdingsthe company was incorporated in the founders home country of England in 1958 and its name was changed to Sime Darby Holdings Ltd.was forced to begin looking elsewhere for revenues. To that end, Sime Darby became one of the first rubber plantations in the region to convert to the production of palm oil and cocoa oil.

Sime Darbys diversification turned out to be a smart move. Demand for its oils and other agricultural products surged during the late 1960s and 1970s, and the company began to accumulate excess cash. A good deal of it was used to acquire other companies, thereby expanding Sime Darbys reach into several other industries. Much of Sime Darbys success during that period was attributable to its acquisition of the giant Sea-field Estate in 1971 and the establishment of Consolidated Plantations Berhad that same year. Through Consolidated Plantations, which became the companys main plantation subsidiary, Sime Darby became a leading force in the regions thriving agricultural sector. In addition to growing the oil palms and cocoa, the company began processing the crops into finished products for sale throughout the world.

As its sales and profits spiraled upward during the early and mid-1970s, Sime Darby became a shiny feather in Britains cap. To the surprise and chagrin of the British stockholders, however, the company was wrested from their control by the Malay-sian government late in 1976. The intriguing events leading up to the takeover began in the early 1970s. During that time, Sime Darbys chief executive, Denis Pinder, began investing the companys cash in new subsidiaries throughout the world. The companys stock price soared as Sime Darbys sales spiraled upward. At the same time, some observers charged that Sime Darby was engaged in corrupt business practices (with critics coining the phrase Slime Darby).

Allegations of corruption were confirmed in the eyes of some detractors when, in 1973, Darbys outside auditor was found stabbed to death in his bathtub. The Singapore police ruled the death a suicide, but Pinder still ended up in prison on misdemeanor charges. Pinders successor took up where he left off, investing in numerous ventures, most of which were located in Europe. Unfortunately, many of those investments quickly soured. Some Malaysians felt that Sime Darby was taking profits from its successful domestic operations and investing them unwisely overseas. So, in 1976 the Malaysian government trading office bought up Sime Darby shares on the London stock exchange. It effectively gained control of the company and installed a board made up mostly of Asians.

Also in 1976, Asian and British board members were able to agree that Tun Tan Chen Locks son, Tun Tan Siew Sin, would be an acceptable replacement as chairman of Sime Darbys board. In 1978 Sime Darby was reincorporated in Malaysia as Sime Darby Berhad. Its headquarters was moved to Kuala Lumpur the following year.

Staggering in the Early 1980s; Rebounding in the Late 1980s and Early 1990s

Sime Darby jettisoned some of its poorly performing assets during the late 1970s and early 1980s under Locks leadership. But it also continued investing in new ventures. It purchased the tiremaking operations of B.F. Goodrich Philippines in 1981, for example, and secured the franchise rights to sell Apple Computers in southeast Asia in 1982. The addition of B.F. Goodrich Philippines marked the companys entrance into the tire manufacturing sector; also in 1981 came the establishment of Sime Darby International Tire Company, which in 1988 was renamed Sime Darby Pilipinas, Inc. In 1984 the company purchased a large stake in a Malaysian real estate development company, United Estates Berhad, and used it to begin developing plantation lands. This company later was renamed Sime UEP Proper-ties Berhad. In Malaysia, Sime Darby acquired the franchises for BMW, Ford, and Land Rover vehicles.

By the early 1980s Sime Darbys push to diversify had given it a place in almost every industry, from agricultural and manufacturing to finance and real estate. Although it did diversify into heavy equipment, real estate, and insurance businesses, new management also plowed significant amounts of cash into the companys traditional commodity and plantation operations. Sime Darby became a favorite of investors looking for a safe bet. Indeed, the mammoth enterprise tended to minimize risks after the investment mistakes of the early 1970s and seemed content to operate as a slow-growth multinational behemoth that could withstand any market downturns. Even if something did go wrong, the company had a war chest of nearly a half billion U.S. dollars from which it could draw.

Company Perspectives

Sime Darby is fully committed to the development and progress of the Asia-Pacific region, dedicated to the pursuit of excellence, and the realisation of its corporate objectives, while consistently upholding its longstanding values of integrity and professionalism.

Unfortunately, Sime Darbys staid strategy negatively impacted its bottom line. Sales dipped to M $2.78 billion in 1992 before plunging to M$2.17 billion in 1983. Sime Darby lumbered through the mid-1980s with annual sales of less than M$2.5 billion, and net income skidded from about M$100 million in the early 1980s to a low M$59 million in 1987. To turn things around, Sime Darbys board promoted Tunku Ahmad Yahaya to chief executive. Ahmad was a veteran of the companys executive ranks and was a favorite nephew of Malaysias first prime minister, Tunku Abdul Rahman. Under Ahmads direction, the giant corporation began a slow turn-around. Significantly, Ahmad was instrumental in luring Tun Ismail to Sime Darbys board. Ismail was a highly influential central bank governor and the chairman of Sime Darbys biggest shareholder. Ismail became nonexecutive chairman of the company following the death of Tun Tan Siew Sin in 1988.

During the late 1980s and early 1990s Ahmad invested much of Sime Darbys cash horde into a bevy of new companies and ventures. Sime became a relatively big player in the global reinsurance business, for example, and tried to boost its activi-ties related to heavy equipment and vehicle manufacturing. Most notably, Sime began pouring millions of dollars into property and tourism in key growth areas of Malaysia in an effort to get in on the development and tourism boom that began in that nation in the late 1980s. The success of that division prompted the company to invest as well in tourism overseas. Through its UEP subsidiary, for instance, Sime Darby bought a full-service resort with condominiums in Florida (Sandestin Re-sorts) and a hotel in Australia, among other enterprises. As the company dumped its cash into expansion and diversification, sales and profits bolted. Revenues climbed from M$2.53 billion in 1987 to M$4.98 billion in 1990 to M$6.20 billion in 1992. During the same period, net income soared from M$85 million to M$353 million.

Sime Darby realized a stunning 65 percent average annual growth in earnings during the late 1980s and early 1990s. Despite its gains, though, critics charged that the company had concentrated too heavily on traditional commodity industries and had failed to move into the 1990s with the rest of Malaysia. In fact, Sime Darby continued to garner about 43 percent of its sales from commodity trading activities in 1993 and only 18 percent from manufacturing. The rest came from heavy equipment distribution, insurance, and its property/tourism holdings. Although building strength in those businesses had added to the companys sales and profits during the late 1980s and early 1990s, the strategy had caused Sime Darby to fall behind more progressive holding companies in the region that were participating in booming high-tech, gaming, brokering, and manufac-turing sectors. Many company insiders believed that Sime Darby would have to eliminate its heavy reliance on commodity industries if it wanted to sustain long-term growth.

Mid-1990s and Beyond: Aggressively Expanding, Then Retrenching Following Financial Crisis

Ahmad, the successful chief executive, also recognized the need for change at Sime Darby. The companys stock price began to fall in 1993 and its rapid revenue and profit growth began to subside in comparison with late 1980s levels. In 1993 Ahmad stepped back from control of the company when he named Nik Mohamed Nik Yaacob to serve under him as chief executive. Among Mohameds first moves was to initiate the merger of the companys plantation assets, organized as Consolidated Plantations, and the parent company, Sime Darby (Sime Darby had owned 51 percent of Consolidated, which was publicly traded). The company also bolstered its regional insurance business in 1993 by joining forces with AXA of France for. its insurance operations in Malaysia and Singapore. These ef-forts signaled an end to the companys historical emphasis on commodities and reflected Mohameds desires to increase activity in manufacturing, high-tech, financial services, and other fast-growth businesses and reduce Sime Darbys bureaucracy.

Key Dates

1910:
William Sime and Henry Darby found Sime, Darby & Co., Ltd. to start a rubber plantation in Malaysia.
1915:
Branch office is opened in Singapore.
1929:
Acquisition of Sarawak Trading Company propels the company into heavy equipment business.
1936:
Companys head office is moved to Singapore.
1958:
Company is incorporated in the United Kingdom as Sime Darby Holdings Ltd.
1971:
Company takes over Seafield Estate and incorporates Consolidated Plantations Berhad.
1976:
Malaysian government gains control of the company.
1979:
The headquarters is moved to Kuala Lumpur.
1981:
B.F. Goodrich Philippines is acquired, marking the beginning of tire manufacturing for the group.
1984:
Company moves into property development through the purchase of a large stake in United Estates Berhad.
1993:
Sime Darby merges with the formerly publicly traded Consolidated Plantations.
1994:
Company acquires 40 percent interest in Port Dickson Power, a Malaysian power generation firm.
1995:
Company purchases controlling stake in United Malayan Banking Corporation; the unit is reorganized as Sime Bank and SimeSecurities.
1998:
Asian financial crisis leads Sime Darby to record the first full-year net loss in its history.
1999:
Sime Bank and SimeSecurities are divested.
2000:
Interest in Port Dickson Power is increased to 60 percent; the companys interest in insurance firm Sime AXA is divested.

To that end, Sime Darby began increasing investments in businesses such as power generation, oil and gas, and heavy equipment exporting. In heavy equipment, Sime Darby bought the Australian distributor of Caterpillar equipment, Hastings Deering (Australia) Ltd., in 1993. In power generation, a key move came in 1994 when Sime Darby took a 40 percent interest in Port Dickson Power Sdn. Bhd., an independent power producer in Malaysia. That same year, the company acquired U.K.-based Lee Refrigeration plc, which was involved in the manufacturing, marketing, and servicing of refrigeration equipment and related products. At the same time, Mohamed worked to absorb the flurry of acquisitions conducted during the previous several years and streamline the company into some sort of cohesive whole. Despite restructuring activities, Sime Darby managed to boost sales to US$3.15 billion in 1994, about US$186 million of which was netted as income.

In 1995 Sime Darby stepped up its acquisition drive through the purchase of a controlling 60.4 percent interest in United Malayan Banking Corporation from Datuk Keramat Holdings Berhad. The US$520 million purchase deepened the companys involvement in the countrys fast-growing financial services sector. United Malayan, which was the fourth largest bank in Malaysia in terms of assets, soon was reorganized as Sime Bank Berhad, with the companys brokerage arm becoming a subsidiary of Sime Bank under the name SimeSecurities Sdn. Bhd.

For the fiscal year ending in June 1997 Sime Darby posted record net income of M$835.8 million (US$322.9 million) on record revenues of M$13.24 billion (US$4.35 billion). Sime Bank and SimeSecurities played a key role in these stellar results (accounting for 30 percent of pretax earnings), but the eruption of the Asian financial crisis in July 1997 quickly proved that the acquisition of United Malayan had been ill-timed, if not also ill-advised. The severity of the crisis in Malaysia, which included a steep decline in the Malaysian stock market and a sharp depreciation of the ringgit (the nations currency), led Sime Bank to post the largest loss in Malaysian banking historyM$ 1.6 billion (US$431 million) for the six months to December 1997. In turn, Sime Darby posted its first loss in decades for the same six-month period, a loss of M$676.2 million ($172.7 million). With other Sime Darby units being hit hard by the crisis as well, the company posted the first full-year loss in its close to 90-year history in the 1998 fiscal year, a net loss of M$540.9 million (US$131 million).

Sime Darby subsequently beat a hasty retreat from its aggressive expansion, determining that the prudent course would be a return to the companys core areas: plantations, property development, tire manufacturing, heavy equipment and motor vehicle distribution, and power generation. In June 1999 Sime Darby sold Sime Bank and its SimeSecurities subsidiary to Rashid Hussain, who merged it with RHB Bank to form the second largest commercial bank in Malaysia. During the 1999 fiscal year, the company also sold Sandestin Resorts for US$131 million. Sime Darby returned to the black in 1999, with net earnings of M$821.8 million (US$216.3 million) on revenues of M$9.91 billion (US$2.61 billion). A further pull-back from the financial services sector came in March 2000 when Sime Darby sold its interest in Sime AXA, its insurance joint venture with AXA of France.

Meantime, an area of growing interest was emerging at the turn of the millennium as Sime Darby increased its interest in Port Dickson Power to 60 percent, giving it majority control and turning Port Dickson into a company subsidiary. Flush with cash from the sale of its financial services units, Sime Darby appeared poised to make additional forays into the power generation sector. Given the near disaster of its aggressive moves into financial services, however, the company was likely to proceed with much caution in all of its future expansionary endeavors in a return to its traditional style of conservative management.

Principal Subsidiaries

Consolidated Plantations Berhad; SD Holdings Berhad; Sime UEP Properties Berhad (51.2%); Tractors Malaysia Holdings Berhad (71.7%); DMIB Berhad (51%); Sime Tyres International (M) Sdn. Bhd.; Kuala Lumpur Golf & Country Club Berhad; Subang Jaya Medical Centre Sdn. Bhd.; Sime Engineering Sdn. Bhd.; Sime Coatings Sdn. Bhd.; Mecomb Malaysia Sdn. Berhad; Puchong Quarry Sdn. Bhd. (85.4%); Sime Inax Sdn. Bhd. (80%); Chubb Malaysia Sendirian Berhad (70%); Sime Rengo Packaging (M) Sdn. Bhd. (70%); Sime SembCorp Engineering Sdn. Bhd. (70%); Port Dickson Power Berhad (60%); Sime Darby Hong Kong Limited (74.9%); Sime Singa-pore Limited (69.1%); Sime Darby Pilipinas, Inc. (Philippines; 97.2%); Lee Refrigeration plc (U.K.; 98.5%); Sime Darby Australia Limited; Hastings Deering (Australia) Ltd.

Principal Divisions

Plantations & Commodity Trading Division; Insurance Services Division; Tyre Manufacturing Division; Heavy Equipment & Motor Vehicle Distribution Division; Property Development Division.

Principal Competitors

Bridgestone Corporation; The Goodyear Tire & Rubber Company; Harnischfeger Industries, Inc.; HSBC Holdings plc; Hutchison Whampoa Ltd.; Jardine Matheson Holdings Limited; Komatsu Ltd.; Marubeni Corporation; Pacific Dunlop Limited; Sumitomo Corporation; Swire Pacific Ltd.

Further Reading

Appell, Douglas, Analysts Spy Signs of Vigor at Once-Dozy Sime Darby, Asian Wall Street Journal, June 20, 1996, p. 13.

Blue-Chip Company Shows Its Edge, Malaysian Business, March 16, 2000.

Brown, Tom, Big Firm Moves Here, Seattle Times, June 18, 1991, p. IF.

Cooke, Kieran, Sime Darby Looks Outside Asia to Spread Its Wings, Financial Times, May 2, 1995, p. 17.

Jayasankaran, S., Blue Chip in the Red: Trouble at Sime Darbys Banking and Stockbroking Arms Has Triggered a Large Loss at the Malaysian Firm, Far Eastern Economic Review, March 19, 1998, pp. 5153.

______, First Blood, Far Eastern Economic Review, March 12, 1998, p. 56.

Lopez, Leslie, Earnings at Sime Darby Imperiled by Units Loss, Asian Wall Street Journal, March 4, 1998, p. 1.

______, Malaysias Troubles Reach Sime Darby, Asian Wall Street Journal, November 10, 1997, p. 1.

Pura, Raphael, Malaysian Giant Sime Darby Plots a Cautious Expansion, Wall Street Journal, May 10, 1995, p. B4.

Reality Hits Sime Darby, Malaysian Business, May 1, 1999.

Seeking Opportunities, Far Eastern Economic Review, March 3, 1994, p. 50.

Temptations of Power, Malaysian Business, December 1, 1999.

Tsuruoka, Doug, Through the Wringer, Far Eastern Economic Re-view, March 3, 1994, p. 52.

______, Wake-Up Call, Far Eastern Economic Review, March 3, 1994, pp. 4852.

Yee, Chen May, Sime Darby Moves to Restore Stature, Asian Wall Street Journal, March 9, 1998, p. 3.

Dave Mote

updated by David E. Salamie

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Sime Darby Berhad

Sime Darby Berhad

21st Floor, Wisma Sime Darby
Jalan Raja Laut
Kuala Lumpur 50350
Malaysia
(3) 291 4122
Fax: (3) 298 7398

Public Company
Founded: 1910 as Sime, Darby & Co., Ltd.
Employees: 32,000
Sales: $3.15 billion
Stock Exchanges: London Kuala Lumpur
SICs: 3011 Tires & Inner Tubes; 5012 Automobiles & Other
Motor Vehicles; 5084 Industrial Machinery & Equipment;
Commodity Contracts Brokers, Dealers; 6510 Real Estate
Operators & Lessors

With 32,000 employees and about 200 companies under its control, Sime Darby Berhad is one of the largest multinational corporations in Asia. Its broadly diversified operations competed throughout the world in almost every industry ranging from insurance and finance to manufacturing and professional services. For example, Sime Darbys subsidiaries built petrochemical facilities, owned rubber plantations, operated hospitals, and assembled German, U.S., and English cars. The mammoth enterprise staggered in the mid-1980s but recorded hefty, consistent revenue and profit gains throughout the late 1980s and early 1990s.

The moniker Sime Darby was contrived in 1910 from the names of two European business partners; William Sime and Henry Darby. William Sime, a traveler and adventurer from Scotland, ventured to Malaysia when he was in his late thirties. Natural rubbersynthetic rubber was still being developed had just been introduced to that country from Brazil. Sime and other entrepreneurs at the time recognized that the climate of Malaysias jungle region was similar to that of Brazils. Thus, rubber could just as easily be grown in that country and sold not only in Malaysia but throughout southeast Asia and the world. Sime suggested to his friend Henry Darby, an English banker, that they start a rubber plantation there. Darby agreed to help fund the effort and together they formed Sime, Darby & Co., Ltd.

Sime Darby initially encountered stiff opposition to its venture from locals, who were wary of outsiders coming in to operate a plantation in Malacca. To quell their contempt, Sime and Darby forged friendships with several members of the Chinese business community. The most notable of those business leaders was Tun Tan Cheng Lock. Lock would later lead the Malaya independence movementin the 1990s, the Malay Peninsula was made up of parts of Burma, Thailand, and Malaysia. Among other distinctions, Lock ultimately was crowned a Knight Commander of the British Empire and also received Malaysias highest award, which is called Tun. With the help of Lock and other business leaders, Sime and Darby were able to procure about 500 acres of rubber plantations in the dense jungles of Malacca.

Rubber markets surged during the 1910s and Sime Darby enjoyed healthy sales. The company expanded, becoming a manager for owners of other plantations and then moving into the trading end of the industry. Sime set up a branch office in Singapore in 1915 and shortly thereafter established a marketing office in London. Demand for rubber eventually outstripped Sime Darbys production capacity, and by the late 1920s the company found it necessary to clear more jungle. To do so, Sime Darby purchased a company called Sarawak Trading. Sarawak held the franchise for Caterpillar heavy earth-moving equipment. That important purchase signaled Sime Darbys expansion into the heavy equipment business, which would eventually become a major component of its expansive network.

Sime Darby made a fortune in the global rubber industry during the 1920s and 1930s. Growth in that industry began to fade, however, as natural rubber was gradually supplanted by synthetic rubber. Sales of natural rubber boomed during World War II as warring nations purchased all available supplies. However, the war also led to significant advancements in synthetic rubber technology. Thus, by the 1960s Sime Darby Holdingsthe company was incorporated in the founders home country of England in 1958 and its name was changed to Sime Darby Holdings Ltd.was forced to begin looking elsewhere for revenues. To that end, Sime Darby became one of the first rubber plantations in the region to convert to the production of palm oil and cocoa oil.

Sime Darbys diversification turned out to be a smart move. Demand for its oils and other agricultural products surged during the late 1960s and 1970s, and the company began to accumulate excess cash. A good deal of it was used to acquire other companies, thereby expanding Sime Darbys reach into several other industries. Much of Sime Darbys success during that period was attributable to its acquisition of the giant Sea-field Estate and Consolidated Plantations Berhad in the early 1970s. Through that operation Sime Darby became a leading force in the regions thriving agricultural sector. Besides growing the oil palms and cocoa, the company began processing the crops into finished products for sale throughout the world.

As its sales and profits spiraled upward during the early and mid-1970s, Sime Darby became a shiny feather in Britains cap. To the surprise and chagrin of the British stockholders, however, the company was wrested from their control by the Malaysian government late in 1976. The intriguing events leading up to the takeover began in the early 1970s. During that time that, Sime Darbys chief executive, Denis Pinder, began investing the companys cash in new subsidiaries throughout the world.

The companys stock price soared as Sime Darbys sales spi-raled upward. At the same time, some observers charged that Sime Darby was engaged in corrupt business practices (with critics coining the phrase Slime Darby).

Allegations of corruption were confirmed in the eyes of some detractors when, in 1973, Darbys outside auditor was found stabbed to death in his bathtub. The Singapore police ruled the death a suicide, but Pinder still ended up in prison on misdemeanor charges. Pinders successor took up where he left off, investing in numerous ventures, most of which were located in Europe. Unfortunately, many of those investments quickly soured. Some Malaysians felt that Sime Darby was taking profits from its successful domestic operations and investing them unwisely overseas. So, in 1976 the Malaysian government trading office bought up Sime Darby shares on the London stock exchange. It effectively gained control of the company and installed a board made up mostly of Asians.

Asian and British board members were able to agree that Tun Tan Chen Locks son, Tun Tan Siew Sin, would be an acceptable replacement as chairman of Sime Darbys board. In 1978 Sime Darby was reincorporated in Malaysia as Sime Darby Berhad. Its headquarters was subsequently moved to Kuala Lumpur. Sime Darby jettisoned some of its poorly performing assets during the late 1970s and early 1980s under Locks leadership. But it also continued investing in new ventures. It purchased the tiremaking operations of B.F. Goodrich Philippines in 1981, for example, and secured the franchise rights to sell Apple Computers in southeast Asia in 1982. The company also purchased a Malaysian real estate development company and used it to begin developing plantation lands.

By the early 1980s Sime Darbys push to diversify had given it a place in almost every industry, from agricultural and manufacturing to finance and real estate. Although it did diversify into heavy equipment, real estate, and insurance businesses, new management also plowed significant amounts of cash into the companys traditional commodity and plantation operations. Sime Darby became a favorite of investors that were looking for a safe bet. Indeed, the mammoth enterprise tended to minimize risks after the investment mistakes of the early 1970s and seemed content to operate as a slow-growth multinational behemoth that could withstand any market downturns. Even if it something did go wrong, the company had a war chest of nearly a half billion U.S. dollars from which it could draw.

Unfortunately, Sime Darbys staid strategy to negatively impact its bottom line. Sales dipped to M$2.78 billion in 1992 before plunging to M$2.17 billion in 1983. Sime Darby lumbered through the mid-1980s with annual sales of less than M$2.5 billion, and net income skidded from about M$100 million in the early 1980s to a low M$59 million in 1987. To turn things around, Sime Darbys board promoted Tunku Ahmad Yahaya to chief executive. Ahmad was a veteran of the companys executive ranks and was a favorite nephew of Malaysias first prime minister, Tunku Abdul Rahman. Under Ahmads direction, the giant corporation began a slow turnaround. Importantly, Ahmad was instrumental in luring Tun Ismail to Sime Darbys board. Ismail was a highly influential central-bank governor and the chairman of Sime Darbys biggest shareholder. Ismail became executive chairman of the company in 1988.

During the late 1980s Ahmad invested much of Sime Darbys cash horde into a bevy of new companies and ventures. Sime became a relatively big player in the global reinsurance business, for example, and tried to boost its activities related to heavy equipment and vehicle manufacturing. Most notably, Sime began pouring millions of dollars into property and tourism in key growth areas of Malaysia in an effort to get in on the development and tourism boom that began in that nation in the late 1980s. The success of that division prompted the company to also invest in tourism overseas. Through its UEP subsidiary, for instance, Sime Darby bought a full-service resort with condominiums in Florida and a hotel in Australia, among other enterprises. As the company dumped its cash into expansion and diversification, sales and profits bolted. Revenues climbed from M$2.53 billion in 1987 to M$4.98 billion in 1990 to a whopping M$6.20 billion in 1992. During the same period, net income careened from M$85 million to a tubby M$353 million.

Sime Darby realized a stunning 65 percent average annual growth in earnings during the late 1980s and early 1990s. Despite its gains, though, critics charged that the company had concentrated too heavily on traditional commodity industries and had failed to move into the 1990s with the rest of Malaysia. In fact, Sime Darby continued to garner about 43 percent of its sales from commodity trading activities in 1993 and only 18 percent from manufacturing. The rest came from heavy equipment distribution, insurance, and its property/tourism holdings. Although building strength in those businesses had added to the companys sales and profits during the late 1980s and early 1990s, the strategy had caused Sime Darby to fall behind more progressive holding companies in the region that were participating in booming high-tech, gaming, brokering, and manufacturing sectors. Many company insiders believed that Sime Darby would have to eliminate its heavy reliance on commodity industries if it wanted to sustain long-term growth.

Ahmad, the successful chief executive, also recognized the need for change at Sime Darby. The companys stock price began to fall in 1993 and its rapid revenue and profit growth began to subside in comparison to late-1980s levels. In 1993 Ahmad stepped back from control of the company when he named Nik Mohamed Nik Yaacob to serve under him as chief executive. Among Mohameds first moves was to initiate the merger of the companys plantation assets, organized as Consolidated Plantations, and the parent company, Sime Darby. That effort signaled an end to the companys historical emphasis on commodities and reflected Mohameds desires to increase activity in manufacturing, high-tech, and other fast-growth businesses and reduce Sime Darbys bureaucracy.

To that end, Sime Darby began increasing investments in businesses like power generation, oil and gas, and heavy equipment exporting. At the same time, Mohamed was faced with the formidable task of absorbing the flurry of acquisitions conducted during the previous six years and streamlining the company into some sort of cohesive whole. Despite restructuring activities, Sime Darby managed to boost sales to US$3.15 billion in 1994, about US$186 million of which was netted as income. Going into 1995, Sime Darby was still operating more than 200 companies and employing more than 30,000 people in 22 countries around the world.

Principal Subsidiaries

PSD Holdings (51 percent); Sime Sem-bawang Engineering (70 percent); Sime Tyres International; China Engineers; Sandestin Resorts (U.S.A.); Hastings Deer-ing; Consolidated Plantations (50.1 percent); Sime UEP Properties (51.2 percent); Tractor Malaysia (71.7 percent); DMIB (51 percent); Sime Darbe Australia (Australia, 80.8 percent); Sime Singapore (Singapore, 89.1 percent); Sime Darbe Hong Kong (Hong Kong, 74.9 percent).

Further Reading

Brown, Tom, Big Firm Moves Here, Seattle Times, June 18, 1991, p. IF.

Seeking Opportunities, Far Eastern Economic Review, March 3, 1994, p. 50.

Tsuruoka, Doug, Wake-Up Call, Far Eastern Economic Review, March 3, 1994, pp. 48-52.

, Through the Wringer, Far Eastern Economic Review, March 3, 1994, p. 52.

Dave Mote

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