Brothers - Thilak (2nd from left) and Ajith de Zoysa (2nd from right) briefing the media

When Associated Motorways PLC changed ownership this week – with Dubai-based Al Futtaim Engineering LLC buying a majority 71 percent stake in the company, there surely must have been a tinge of sadness and concern among some employees and senior management about the future.
What about heritage, family values and nostalgia – is there no place in business for these ideals? “There is no heritage or sentiment … this is for the greater good of the company and the country at large in terms of investment,” Ajita de Zoysa, Chairman of the group, told reporters on Monday, the day the majority stake was sold by the De Zoysa family on the Colombo Stock Exchange.

De Zoysa will continue at the helm at the publicly-listed company for another two to three months after which his brother and group Deputy Chairman Tilak de Zoysa will take over. Speculation however is rife in the corporate sector that with Al-Futtaim securing a 71 percent stake for a near Rs 7 billion and already announcing a mandatory offer to buy the balance 29 percent, the Dubai based Group will make sweeping changes including putting its own people in key senior board positions.

The two stakes that made up the 71 percent came from Associated Electrical Company (AEC) and 20 percent from John Keells Holdings (JKH) which bought into the company in June 2006 to jointly get involved in property development. Monday’s decision on the sale of the 59-year-old AMW didn’t surprise many in the stock market or the business community as AEC has been scouting around for a buyer for the AMW stake for several months now. AMW has been steeped in tradition and history.

“My uncle, Sir Cyril de Zoysa, who was a pioneering industrialist started this company which my father Mr. V.T. de Zoysa headed later on,” Mr de Zoysa recalled. He said this deal was entered into as the company needs large capital infusion to start the projects that the board has foreseen for the company.

The new owner of AMW was introduced to the company by Dubai-based, Sri Lankan investor Alex Lovell. “Mr. Alex Lovell introduced the Al Futtaim Group to me and (on Saturday) Mr. Bob Farrow (Senior General Manager- Business Development) from Al Futtaim offered to buy the AEC stake in AMW. I took board approval and then we decided to do the market transaction,” Mr De Zoysa told reporters.

Mr. Farrow told The Sunday Times FT that after the AMW board sanctioned the transaction, Al Futtaim had approached JKH. “Then they decided to sell,” he said. Mr de Zoysa said this is the second large foreign investment he has brought into the country during the last 18 months (Union Bank investors were the first) and that Sri Lanka’s investment potential is great. He said that Al Futtaim will set up a car assembling plant to manufacture cars for the local market as the prevailing tax structure makes it difficult to import cars.

Al Futtaim
Little is known about the Al-Futtaim Group besides the run of the mill details about when it was established and what it does. According to its website, the Dubai based conglomerate has been in existence for over 70 years but fails to provide information pertaining to its corporate structure and the names and profiles of a single board member.

Established in the 1930's, the Group started operations as a trading enterprise but rapid development throughout the 1940's and 50's saw it establish itself regionally as an integrated commercial, industrial and services organization. It dominates many market segments in the United Arab Emirates and its operations have spread to Bahrain, Kuwait, Qatar, Oman and Egypt. The Group deals in electronics and engineering, construction, retailing, automotives, insurance, services, property development and real estate and operates over 40 companies collectively bearing the Al-Futtaim name.

AMW
AMW's history stretches back to 1949 when the company was established by Cyril de Zoysa. According to its website, Mr. de Zoysa conceived the idea of tyre rebuilding and manufacture of rubber goods with a view toward not only importing and exporting but that maximum use should be made of natural rubber through indigenous manufacture.

AMW's product portfolio now includes Nissan and Maruti, the latter being one of the fastest selling automotive brands in the country. Its portfolio further includes Good Year Tyres, BP and Castrol lubricants.
The 2007/08 Annual Report for the year ended 31 March shows company gross turnover for 2008 as just over Rs.9.75 billion while company turnover in 2007 was around Rs.12 billion. Profit for 2008 stood at Rs.402.5 million, down from 2007's profit of Rs.604.8 million.

It is interesting to note that AMW owns a substantial amount of property in various locations across the country such as factory land in Kalutara and Anuradhapura as well as land and buildings in Kitulwatte, Kurunegala, Bauddhaloka Mawatha and D.S. Senanayake Mawatha in Colombo. Valuations from 2006 show that the combined value of the land and buildings comes to over Rs.2.4 billion.

AEC has held a majority stake in AMW for the past five years or so. Investor Shanker Somasunderam acquired a 20 percent stake in AMW in 2003 and held onto it until 2005. In mid 2005, the Richard Pieris & Company Ltd. acquired the 20 percent stake in AMW for Rs.346 million from Mr Somasunderam. It was reported that positive momentum in turnover recorded by AMW led to that deal. AMW turnover was Rs.5.4 million during 2004 to 2005. It was speculated during that time that Chairman of Richard Pieris, Dr. Sena Yaddehige wanted full control in AMW but despite alleged negotiations between the two parties, nothing materialized.

On June 7, 2006, Richard Pieris sold its 21 percent stake in AMW back to AEC and/or Ajita de Zoysa at a price of Rs.330 per share raising Rs.569 million, in excess of Rs.200 of the Rs.346 million it paid for the 20 percent stake just the previous year. In June 2006, JKH acquired a 20 percent stake in AMW with approximately 10 percent coming from AEC and the rest via private placement. The Employers' Provident Fund bought a small 3.6 percent stake in early 2007. Fast forward to July 2008 and the Dubai based Al-Futtaim Group has come away with 71 percent, 20 percent subsequent to JKH divesting its stake.

The history of the shareholding of the Directors of AMW, several of which are members of the de Zoysa family, is much harder to ascertain due to the fact that AEC, which had close to 51 percent of AMW shares, has several front companies. As of 31 March 2008, the public holds 22.09 percent of shares while the Directors, spouses, subsidiaries and controlled companies have a 77.91 percent stake in AMW. The Annual Report shows that Ajita de Zoysa who has been the Chairman of the AMW Group of Companies since 1990 controls 66,854 shares while his brother and former Ceylon Chamber of Commerce Chairman Tilak de Zoysa controls 87,350 shares.

This is followed by D.A. de Zoysa and A.S. de Zoysa controlling 3000 shares each. However, it is S.M. de Zoysa who is listed as an alternate director who controls over 1.5 million shares. Some of the other directors include the Chairman of JKH Susantha Ratnayake appointed to the Board in 2006, Chairman of the Rubber Traders' Association J.B.L. De Silva, Chairman of the Ceylon Motor Traders' Association Ranjan De Silva and attorney-at-law K. Kanag-Isvaran.

AEC
AEC's Annual Report for last year shows that the two largest shareholders are Commercial Agencies (Ceylon) Ltd with a 66.64 percent stake followed by Ajita de Zoysa & Co. Ltd who has a 22.89 percent stake. This makes Commercial Agencies, which is even more elusive than AEC, the parent company of AEC. The rest of the top 20 shareholders own minute quantities of AEC, mostly less than one percent. Ajita de Zoysa himself is listed as having 4900 shares comprising of a 0.17 percent stake in AEC. Market insiders say the key to determining the true owner of AEC is to determine who controls Commercial Agencies. (NG)