1. INTRODUCTION

On behalf of the Board of Directors (“Board”) of TM, CIMB Investment Bank Berhad (“CIMB”) wishes to announce that TM had today, issued a letter to the Board of VADS to inform of TM’s intention to privatise VADS via a selective capital reduction and repayment exercise under Section 64 of the Companies Act, 1965 (“Act”) (“Proposal”).

As at 29 August 2008, VADS has an issued and paid-up share capital of RM65,909,450 comprising 131,818,900 ordinary shares of RM0.50 each in VADS (“VADS Shares”). As at 29 August 2008, TM holds directly 83,421,000 VADS Shares, representing approximately 63.3% equity interest in VADS.

Further, TM was informed today by VADS that its Board has agreed to table the Proposal to its shareholders for their consideration, subject to the execution of a conditional definitive agreement between TM and VADS for the Proposal (“SCR Agreement”).

2. DETAILS OF THE PROPOSAL

2.1 The Proposal involves a selective capital reduction and repayment under Section 64 of the Act, which will result in the reduction of VADS’ enlarged issued and paid-up share capital after the Proposed Bonus Issue (as defined in Section 2.4(iii) below) to RM5.0 million comprising 10.0 million VADS Shares by way of cancellation of all outstanding VADS Shares, save for 10.0 million VADS Shares (“Cancelled VADS Shares”). The remaining 10.0 million VADS Shares (“Remaining VADS Shares”) shall be held by TM.

2.2 The shareholders of VADS other than TM (“Other Shareholders”), whose names appear in VADS’ Record of Depositors at the close of business on a date to be determined and announced later, shall receive a cash amount of RM7.60 for each VADS Share held before the Proposed Bonus Issue. TM will waive its entire entitlement to the repayment of capital under the Proposal.

2.3 Accordingly, the aggregate capital repayment value of the Cancelled VADS Shares will be a sum equivalent to RM7.60 multiplied by the number of VADS Shares held by the Other Shareholders before the Proposed Bonus Issue.

2.4 To facilitate the Proposal, TM proposes that the following be implemented:

(i) TM shall nominate and procure a wholly-owned subsidiary (“SPV”) to provide an interest-free advance of up to RM417.3 million to VADS to fully/partially fund the Proposal (“Advance”);

(ii) upon all approvals in Section 6 below being obtained, save and except for the confirmation referred to in Section 6(iv) and immediately before the hearing date for the High Court of Malaya to determine whether to confirm the reduction in VADS’ share capital, the SPV shall fully/partially waive the Advance (“Proposed Waiver”) to ensure that VADS has sufficient reserves to implement the Proposed Bonus Issue; and

(iii) VADS will undertake a bonus issue of such number of VADS Shares such that VADS’ enlarged share capital would equal the aggregate capital repayment value of the Cancelled VADS Shares and nominal value of the Remaining VADS Shares (“Proposed Bonus Issue”).

2.5 Based on VADS’ issued and paid-up share capital as at 29 August 2008 comprising approximately 131.8 million VADS Shares and assuming the full exercise of outstanding options pursuant to the employees’ share option scheme for eligible employees of the VADS group of companies (“VADS Group”) as at 29 August 2008, which are exercisable into approximately 6.51 million new VADS Shares:

(i)the Proposed Bonus Issue would involve the issuance of approximately 706.2 million new VADS Shares;

(ii)VADS’ enlarged share capital after the Proposed Bonus Issue would be approximately RM422.3 million comprising approximately 844.6 million VADS Shares; and

(iii) the capital to be cancelled under the Proposal would be approximately RM417.3 million, represented by approximately 834.6 million Cancelled VADS Shares.

2.6The Proposed Bonus Issue is proposed to be effected by way of capitalisation of VADS’ entire share premium account and the remaining balance from VADS’ retained profits. Based on VADS’ latest unaudited financial results for the 6-month period ended 30 June 2008, VADS (at the company level) has share premium and retained profits of RM20.0 million and RM57.0 million respectively. Upon implementation of the Proposed Waiver, VADS would have sufficient reserves to be capitalised for the Proposed Bonus Issue.

2.7 For avoidance of doubt, the new VADS Shares to be issued under the Proposed Bonus Issue will not be credited into the central depository system accounts of VADS’ shareholders and the Proposed Bonus Issue is to be implemented solely for the purpose of facilitating the selective capital repayment under the Proposal.

2.8 In addition, to facilitate the Proposed Bonus Issue, it is proposed that VADS’ authorised share capital of RM100.0 million comprising 200.0 million VADS Shares is increased to RM450.0 million comprising 900.0 million VADS Shares and VADS’ Memorandum of Association be amended accordingly.

2.9 Upon completion of the Proposal, VADS will become a wholly-owned subsidiary of TM and VADS will be delisted from the Official List of Bursa Malaysia Securities Berhad (“Bursa Securities”).

2.10 The total capital repayment of a proposed cash amount of approximately RM417.3 million or RM7.60 per VADS Share (before the Proposed Bonus Issue) represents the following:

(i) a premium of approximately 18.4% and 26.0% over the 5-day and 3-month volume-weighted average market price of VADS Shares up to and including 19 September 2008 of RM6.42 and RM6.03 respectively;

(ii) a premium of approximately 10.1% over the highest historical trading price of VADS Shares up to and including 19 September 2008 of RM6.90; and

(iii) a price-to-earnings ratio of 18.1 times and price-to-book ratio of 5.7 times based on VADS’ audited consolidated financial statements for the year ended 31 December 2007.

2.11 TM proposes for VADS to fund the capital repayment under the Proposal through the Advance and VADS’ cash balance then and to fund the Advance through the TM group of companies’ (“TM Group”) internally generated funds and/or borrowings.

3. INFORMATION ON VADS

VADS was incorporated in Malaysia under the Act on 29 November 1990 as a private limited company under the name of Dashwin Sdn Bhd. VADS later changed its name to VADS Sdn Bhd on 21 January 1991. VADS was subsequently converted to a public entity and assumed its present name on 4 April 2001.

VADS was listed on the Second Board of Bursa Securities on 7 August 2002 and its listing status was transferred to the Main Board of Bursa Securities on 10 March 2005.

The principal activity of VADS is the provision of managed network services. The principal activities of VADS Group are the provision of managed network services, system integration services and contact centre and related services.

4. RATIONALE FOR THE PROPOSAL

As part of TM’s strategy for growth and earnings enhancement, the privatisation of VADS will accord the TM Group greater flexibility to streamline its businesses to maximise potential synergies and cost-saving benefits. The Proposal is also expected to allow the TM Group to better serve its range of customers, particularly in the Enterprise segment. The Proposal will also eliminate any potential conflict of interest situation between TM and VADS.

5. EFFECTS OF THE PROPOSAL

5.1 Share capital and substantial shareholders’ shareholdings

The Proposal will not have any effect on TM’s share capital and substantial shareholders’ shareholdings in TM.

5.2 Net assets and gearing

Based on TM’s audited consolidated balance sheet as at 31 December 2007, after adjusting for the issuance of new ordinary shares of RM1.00 each in TM on 17 March 2008 under the TM Group’s existing employee share option scheme for eligible employees and executive directors and the demerger exercise of the TM Group which was completed on 25 April 2008, the Proposal is not expected to have a material effect on TM’s consolidated net assets and gearing.

5.3 Earnings

While TM already consolidates VADS’ consolidated net profit in proportion to its equity interest in VADS, the Proposal would enable TM to fully consolidate the earnings of the VADS Group. Nonetheless, the Proposal is not expected to have any material effect on TM’s consolidated earnings for the financial year ending 31 December 2008 as the Proposal is expected to be completed within the first half of 2009.

TM’s Board expects that the Proposal will contribute positively to TM’s consolidated earnings in the near to mid term.

6. APPROVALS REQUIRED

The Proposal is subject to the following:

(i) execution of the SCR Agreement;

(ii) approval of the Foreign Investment Committee;

(iii) approval of the shareholders of VADS at an extraordinary general meeting (“EGM”) to be convened by VADS;

(iv) confirmation by the High Court of Malaya for the reduction of VADS’ share capital;

(v) consent by VADS’ creditors/lenders, where applicable; and

(vi) approvals/consents of any other relevant authorities or persons, if required.

7. DIRECTORS’ AND MAJOR SHAREHOLDER’S INTERESTS

Save for TM’s Director, Tan Sri Dato’ Ir Muhammad Radzi Hj Mansor (“TSDI Muhammad Radzi”), who, as at 29 August 2008, holds directly 30,000 VADS Shares representing approximately 0.02% equity interest in VADS and as such is deemed interested in the Proposal, none of TM’s Directors and major shareholder and persons connected to them have any interest, direct or indirect, in the Proposal.

TSDI Muhammad Radzi will abstain from voting in respect of his direct and/or indirect shareholdings (if any) in VADS on the resolution pertaining to the Proposal to be tabled at VADS’ EGM to be convened and have also undertaken to ensure that persons connected to him will abstain from voting in respect of their direct and/or indirect shareholdings (if any) in VADS on the resolution pertaining to the Proposal to be tabled at VADS’ EGM to be convened.

TSDI Muhammad Radzi has abstained and will continue to abstain from deliberation and voting on the Proposal at TM’s relevant Board meetings.

Mr Quah Poh Keat, TM’s Director, is also a Director of Public Bank Berhad, which through its subsidiaries involved in fund management, holds VADS Shares. Mr Quah Poh Keat has voluntarily abstained and will continue to abstain from deliberation and voting on the Proposal at TM’s relevant Board meetings.

8. ? ADVISER

CIMB Investment Bank Berhad has been appointed as the Adviser for the Proposal.

9. DIRECTORS’ STATEMENT

TM’s Directors (other than TSDI Muhammad Radzi and Mr Quah Poh Keat who have abstained from deliberation for the reasons set out in Section 7 above), having considered all aspects of the Proposal, are of the opinion that the Proposal is in the best interest of TM.

This announcement is dated 22 September 2008.

Announcement Info