Lessons from the UE E&C takeover

NOW that the proposed takeover of UE E&C has been completed and the engineering and construction company is to be taken private in due course, it's worth looking back at the saga because it offers many instructive features for regulators and all shareholders, not just minorities. The offer closed on Wednesday with Southern Capital (SC) garnering a stake of 96.56 per cent, including substantial shareholder Singapore Tong Teik's interest of about 9.17 per cent.

The first and perhaps most crucial feature is that when major shareholders of a presumably undervalued company accept what appears to be the first bid they receive, there could be important, far-reaching consequences.

In UE E&C's case, shareholders that owned 68.2 per cent of the company agreed right from the start to sell their shares to bidder SC, a private equity firm that offered S$1.25 per UE E&C share. In such a situation, whether or not the offer is truly fair or whether it grossly undervalues the firm is almost impossible to determine because once majority owners give their acceptance, this effectively bars the entry of competing bids from parties who might also have wan…