INDEPENDENT financial adviser KPMG Corporate Finance says the offer by Keppel Corp to take its real estate subsidiary Keppel Land private is not fair on an intrinsic value basis but there is evidence to suggest the offer is reasonable.
KPMG noted that based on its sum-of-the-parts (SOTP) valuation, the base price and higher offer price are at a "significant discount to the sum-of-the-parts estimated valuation range of between S$6.58 and S$6.79 per share". Market watchers note that the "fairness" aspect, which is computed based on the revalued net asset valuation (RNAV) of the company, is subjective. Within the research community alone, analysts recommendations have posited Keppel Land's RNAV to span from S$4.64 to S$6.64.
"(The position of between S$6.58 and S$6.79) is at the higher end of what the research community has come back with," noted a market watcher.
The independent financial adviser also qualified that the revaluation of properties, which forms a large part of the SOTP surplus value, has been done on an 'as is' basis which assumes that the properties will be disposed of at the assessed values and accordingly, has not considered any potential development profits should the properties be developed and completed.
On the other hand, the offer can be deemed reasonable for a number of reasons. Keppel Corp on Jan 23 launched the offer to take its real estate subsidiary Keppel Land private at a base offer price of S$4.38 per share. This will be raised to S$4.60 per share if acceptance levels exceed the 90 per cent threshold that turns the offer into a compulsory acquisition.
These reasons include the fact that the base offer price and higher offer price represent significant premiums to the median share price, and that given that Keppel Corp already owns and controls 54.6 per cent of the total issued share, this means it is unlikely that there will be another bidder offering better terms in the near term.
"Even if the offer does not result in a delisting or compulsory acquisition of the offer shares, the offer itself may reduce the free float and trading liquidity of the shares," KPMG noted.
The key valuation metrics, as implied by the base offer price and the higher offer price, also compare favourably to the median of Keppel Land's listed peers and to the median of precedent transactions involving Singapore property developers.
"On an intrinsic value basis, the offer falls short of being 'fair' from a financial perspective, although we note that effort may have to be expended to dispose of the assets and realise the intrinsic value. However, there is evidence to suggest the offer is 'reasonable'," said KPMG.
The independent directors concur with KPMG's assessment of the offer and its recommendation.
Accordingly, they have recommended that shareholders take one of three routes:
- accept the offer; or
- sell their shares in the open market if they are able to obtain a price (after deducting related expenses) higher than the base offer price assuming they do not believe that the compulsory acquisition threshold will be reached; or
- sell their shares in the open market if they are able to obtain a price higher than the higher offer price.
Keppel Corp ended trading on Thursday up three cents at S$8.77 while Keppel Land lost one cent to end trading at S$4.53.