The five minutes that made a big difference for KepLand shareholders

Singapore

FIVE minutes could have made all the difference to minority shareholders of property developer Keppel Land whose hopes of enjoying a higher payout of S$4.60 per share were dashed after the surprise result of parent firm Keppel Corp's privatisation bid saw them receive only S$4.38 instead.

Within the narrow window between 5pm and 5.05pm on March 26, which was the day Keppel Corp announced its final offer extension, enough shares were transacted that could have changed the outcome of the takeover - that is, if the entire lot could have been properly tendered to offeror KepCorp.

The problem was the 6.3 million shares traded in those five minutes could not have been tendered in time due to a quirk of the local share settlement system, which investors may not all have known or thought about when they rushed in to snap them up during that fateful Thursday evening.

The matter hinges on two issues, both related to timing: the number of days the offer's deadline was extended, and the exact time KepCorp announced its final extension.

To recap, KepCorp's privatisation bid for KepLand was announced in late January and finally closed at 5.30pm on March 31, with the conglomerate garnering a smaller- than-expected stake of 95.1 per cent in its property arm.

Earlier, KepCorp had offered a base price of S$4.38 apiece for KepLand shares it did not already own, and a higher price of S$4.60 if it could reach a squeeze-out threshold of 95.5 per cent.

Since it didn't end up with 95.5 per cent, by a margin of 0.4 per cent, this meant that KepLand shareholders who tendered their shares to KepCorp received S$4.38 per share rather than the S$4.60 they were hoping for, which saved KepCorp S$155 million in payouts.

The 0.4 per cent shortfall works out to about 5.1 million shares, a gap that could have easily been covered if the 6.3 million shares traded between 5pm and 5.05pm on March 26 could have been tendered to KepCorp.

Here, the length of the final extension period for the offer made a crucial difference.

KepCorp announced at 5pm on March 26 (a Thursday) that the offer deadline would be extended by three trading days from 5.30pm that evening to 5.30pm on March 31. When this announcement was made, KepCorp owned 93.2 per cent - enough to take KepLand private but not enough to hit the S$4.60 threshold, so the extension was most likely a good-faith effort to encourage more KepLand shareholders to tender their shares quickly so that the offer could cross the 95.5 per cent buyout level.

Aspiring arbitrageurs may then have jumped in to buy KepLand shares after 5pm on March 26, thinking that the takeover would surely reach 95.5 per cent, thus triggering the S$4.60 buyout, because the 6.3 million shares were done at prices between S$4.52 and S$4.54. However if they did, they would have seen their quick-profit plan backfire.

This is because the Central Depository (CDP) delivers shares to the buyer's account only on the third business day after the trade, commonly known as "T+3", regardless of how early the buyer pays for the shares. The delivery time is not fixed but is typically late at night.

A Singapore Exchange spokesman told The Business Times that CDP transfers the shares to the buyer's account during "overnight batch processing", and dealers familiar with the process said that the shares usually get delivered around midnight.

This means that any shares traded on March 26, before or after 5pm, would likely have reached the buyer's CDP account late at night on March 31 - after the 5.30pm deadline.

This brings us to the second issue - the precise time KepCorp announced its final extension, which was 27 seconds after 5pm. This is technically after the market closes at 5pm and in keeping with common practice since many listed companies tend to issue significant releases immediately after 5pm.

But although the market closes at 5pm on paper, trading actually continues for nearly five minutes afterward during the market's pre-close session, which ends at a random time between 5.04pm and 5.05pm. Both big traders and retail investors can still place buy and sell orders during the pre-close window and have those orders possibly matched, dealers said.

Announcing the extension before 5.05pm might thus have made a difference on March 26, as shown by the trading frenzy that came in the immediate five minutes after the announcement - the 6.3 million KepLand shares that changed hands in those five minutes made up nearly half of the total 14 million traded that day.

The million-dollar question therefore is: if the extension announcement had been made after 5.05pm, would those 6.3 million shares have been tendered instead of traded?

Given that KepLand was already headed for delisting at that point, if there had been no news of an extension before 5.05pm, existing shareholders may have believed the offer would close that day. They would then likely have faced three options: hang on and hope for a squeeze-out; try to sell to a buyer willing to hold suspended stock; or tender to KepCorp.

Either way, if the announcement had been made after 5.05pm, arbitrageurs might have been prevented from jumping in misguidedly to pick up shares during that 5-5.05pm window.

It would also have given market participants more than just a few minutes to think before reacting. As CMC Market's Nicholas Teo put it: "Releasing the announcement at 5pm sharp may not have allowed enough time for everyone to react, except for close market watchers."

To be sure, it is not any company's responsibility to take investors' potential misperceptions into consideration. Furthermore, KepCorp was in the enviable position of benefiting regardless of whether the takeover met the squeeze-out threshold or not since if it did, it would not have had to deal with minority shareholders and if it did not, it got to save a significant sum.

Still, if those 6.3 million shares could have been tendered, the outcome might have been happier for all concerned.