AMF minority shareholders cry foul over LB Finance merger pricing

• Minority shareholders renew calls for regulators to review their concerns

Minority shareholders of Associated Motor Finance Company PLC (AMF) have renewed their challenge to the proposed amalgamation with L B Finance PLC after the Central Bank of Sri Lanka (CBSL) informed them that the pricing of the transaction falls outside its regulatory mandate, prompting shareholders to intensify calls for intervention by the Securities and Exchange Commission of Sri Lanka (SEC).

The shareholders continue to argue that the proposed cash consideration of Rs. 55 per share does not adequately reflect the value of their holdings and have urged the SEC to examine whether the consideration is fair and whether minority shareholder interests have been sufficiently protected.

In correspondence with shareholders, the CBSL said its role as the regulator of licensed finance companies is focused on safeguarding depositors and maintaining the soundness of regulated institutions, indicating that the valuation and pricing of the proposed amalgamation do not fall within its regulatory purview.

Responding to the CBSL, the minority shareholders acknowledged the Central Bank’s explanation but said they were still awaiting responses from the SEC and the Colombo Stock Exchange (CSE), arguing that no independent valuation report has been published to justify the proposed amalgamation price.

They noted that, during L B Finance’s mandatory offer in November 2025, HNB Investment Bank (Private) Limited, acting as the independent adviser, concluded that shareholders should not accept the Rs. 50 per share offer because it was below values indicated by several valuation methodologies, including price-to-book, price-to-earnings and volume-weighted average price analyses. The then Board of Directors of AMF endorsed the independent adviser’s opinion while advising shareholders to make their own assessment before deciding whether to accept the offer.

The shareholders argue that the subsequent amalgamation proposal offering Rs. 55 per share has not been supported by a comparable independent valuation or a detailed explanation of how the consideration was determined.

The concerns stem from L B Finance’s acquisition of a 65.6% controlling stake in AMF at Rs. 50 per share in September 2025, followed by a mandatory offer to remaining shareholders at the same price.

The shareholders have also questioned statements made at AMF’s Extraordinary General Meeting (EGM) on 30 June. In their latest correspondence, they said CBSL officials had previously informed them that AMF was able to continue as a standalone company and faced no issues relating to capital adequacy, financial ratios or other regulatory requirements, and that the proposed amalgamation had been initiated at the request of L B Finance.

However, they allege that during the EGM, AMF Chief Executive Officer T. M. A. Sallay told shareholders that the company could not survive as a standalone entity and that its financial ratios were unsatisfactory, urging shareholders to vote in favour of the special resolution. The minority shareholders contend that these remarks appear inconsistent with the information previously conveyed to them by the CBSL and have asked whether any regulatory action is warranted.

Separately, the shareholders claimed that around 114 minority shareholders, collectively holding more than 8.2 million shares or about 7.3% of AMF’s issued shares, voted against the special resolution at the EGM. They also said the company’s second-largest shareholder, Dr. Weththige Jinadasa, who holds about five million shares, attended the meeting in person and also voted against the resolution.

The minority shareholders have reiterated their request that regulators examine whether the valuation appropriately reflects AMF’s financial performance, future earnings potential and prevailing market conditions. They have also raised concerns regarding post-acquisition developments, including increased impairment provisions and the cancellation of a proposed debenture issue, and asked regulators to consider whether these developments had any bearing on the valuation.

AMF shares closed unchanged at Rs. 53 on Wednesday. The company reported net assets of Rs. 42.02 per share as at end-March 2026.

The merger with LB Finance PLC will take effect on 31 July and AMF shares will be suspended from trading on the Colombo Stock Exchange from the close of market on 27 July ahead of the amalgamation becoming effective.

Under the agreed terms, AMF shares will not be converted into LB Finance shares. Instead, shareholders of AMF other than LB Finance will receive a cash consideration of Rs. 55 per share.

Upon completion of the amalgamation, the shares held by LB Finance in AMF will be cancelled in accordance with Section 240(3)(a) of the Companies Act, No. 7 of 2007.

LB Finance currently holds a 73% stake in AMF, following the completion of a voluntary offer made late last year at Rs. 50 per share. The amalgamation will result in AMF ceasing to exist as a separate listed entity, with its business and assets being absorbed into LB Finance.