Breaking up SPH is hard to do, says CEO Ng Yat Chung

Singapore

SOME shareholders of Singapore Press Holdings (SPH) have seized on the company's recent divestment of sgCarMart for S$150 million to support the belief that piecemeal disposals of assets can extract a better value than Cuscaden Peak's all-cash offer of S$2.36 a share.

But this is not necessarily the reality, said SPH's chief executive Ng Yat Chung at a virtual information session organised by the Securities Investors Association (Singapore) last Friday (Mar 11). Details of the proceedings were released on Wednesday (Mar 16).

Ng said that while it would be fair to say that the price tag of S$150 million is "above average" of the valuation range, Cuscaden's all-cash consideration of S$2.36 is around two-thirds of the valuation range based on the opinion of the independent financial adviser (IFA) - which set the range from S$1.93 to S$2.57.

"Whether or not you want to call it at the top end of the range (is up to you), but it is definitely above the mid-point and is at a good end of the range," he said.

Regarding the question of whether SPH would be better off disposing parts of its portfolio and returning shareholders the capital, Ng stressed that the company is selling some of the assets that are "not quite in (its) core business".

"As a matter of principle, we should not be thinking about returning capital to shareholders unless we have no idea what we want to do with the capital," he said.

As far as sgCarMart goes, the asset got a fair offer and SPH capitalised on it to use the funds to invest further and manage debt levels. This "capital recycling" can help SPH churn its balance sheet to get better assets and return value to shareholders in the long-run, he noted.

"Let me tell shareholders upfront, we are not in divestment mode. But even if we are in divestment mode, the divestments will take time," said Ng, citing volatile market conditions.

In addition, if SPH were to dispose a part of its assets that is "too big", bondholders could trigger a default, and SPH will have to fork out money to pay off these bondholders, which ultimately leaves shareholders with less.

"But what we have as an alternative before us now is a good offer that is, on the valuation side, on a good end of the range for the entire portfolio. And (Cuscaden) also said that they will take care of the debt SPH has," said Ng.

He said SPH is "going full speed" with the Cuscaden Peak offer to get the right decision from its shareholders, and hopes to wrap the matter up as soon as possible.

Ng also did not want to speculate on what the arbitration outcome will be, as far as the proceedings with a Keppel Corporation unit are concerned. These proceedings began when SPH decided to terminate Keppel's implementation relating to its takeover offer.

"The arbitration that Keppel has decided to undertake is separate from the Cuscaden scheme. The court has allowed the Cuscaden scheme to proceed, knowing full well that the Keppel arbitration is ongoing. That is an important point for everybody to understand," said Ng.

To a question on whether SPH exercising its termination right for Keppel's offer means that SPH will no longer be liable for the S$34 million break fee, Ng declined comment because this is "the subject of the arbitration".

Back in November last year, a bidding war ensued between Cuscaden and Keppel for SPH's non-media assets. Keppel's final offer after revision stood at S$2.351 per share for SPH's non-media assets - comprising S$0.868 in cash, 0.596 Keppel Reit unit and 0.782 SPH Reit unit per SPH share.

Meanwhile, Cuscaden's revised offer gave each SPH shareholder the option of an all-cash offer of S$2.36, or S$2.40 per share comprising S$1.602 cash and 0.782 of an SPH Reit unit through a

distribution-in-specie by SPH.

In response to a question on the length of the indicative timeline for the Cuscaden offer, Ng said the company needs to give shareholders time to make a choice between both offer types - the all-cash alternative or the combination of cash and units.

Should shareholders not vote in favour of the Cuscaden deal, SPH stands ready to continue managing and growing the business, and has a strategy to do it, said Ng. However, he said that he agrees with SPH's independent directors that shareholders should vote in favour of the scheme.

It has been some 4 months since the revised offer from Cuscaden was tabled, noted Sias' chief executive David Gerald. He asked if there has been any improvement in the operating environment since SPH's strategic review was announced.

Ng said that until Feb 24, the operating environment was seeing "gradual improvement" from the brunt of the Covid-19 pandemic.

Now, the company is faced with rising interest rates that will affect its cost of borrowing, the pandemic that is still affecting parts of its business at "different rates", and also the war between Russia and Ukraine.

"So, the question is not whether there is (a) serious impact due to the invasion. The question is whether the impact will be serious or disastrous . . . Even though SPH is not directly affected by the war, we have to deal with the ripple effects or second-order effects of cost inflation, the impact on consumer spending and the impact of higher costs," he said.

SPH's share price has tumbled over the years, and Gerald noted that there are some shareholders who bought into the company at about S$4.50 per share in 2013 and are understandably frustrated.

To this, Ng said: "Even if we carry on, I will tell you this upfront - that there is no way we can get to S$4.50 within a year, given where we are today. Can I do it in two years' time? We will try our best. But I cannot give you the S$4.50 soon, given the environment we are facing."

SPH will not announce its first-half results before the scheme meeting, and although there is "gradual improvement", the company is not completely out of the woods, he said.

Shares of SPH closed on Thursday unchanged at S$2.34.