Higher offer price justified by better SPH financials, economic environment: Keppel

KEPPEL Corporation's revised offer price for Singapore Press Holdings (SPH) reflects a change of conditions, stemming from an improved financial performance and the overall economic environment since July, said Keppel's chief executive Loh Chin Hua.

Discussions between Keppel and SPH in recent months have also made various "business synergies" between the two companies clearer, said Loh in a call with reporters and analysts on Wednesday (Nov 10).

"I want to stress that this remains a very attractive and strategic portfolio for Keppel. Yes, (we) have to pay a bit more but this additional consideration is well supported by the improvement in values since July," he said.

Keppel on Tuesday upped the cash component of the offer by S$0.20 per share to S$0.868 per share, resulting in a total offer of S$2.351 per share. SPH shareholders will still receive 0.596 of a Keppel Reit unit and 0.782 of a SPH Reit unit per SPH share.

"We believe the synergies are real...and that we are in a unique position to be able to realise synergies," he added, citing SPH's purpose-built student accommodation (PBSA) portfolio as one example.

SPH reported a net profit of $92.9 million for the FY21 ended Aug 31, reversing from a net loss of S$83.7 million in the previous year, on the back of improved performance across all its non-media business segments. The group's total revenue from continuing operations for the fiscal year inched up 2.4 per cent to S$475.1 million.

SPH's media operations were reported under discontinued operations after the company's shareholders voted in favour of a proposed restructuring, which would result in the group's media business being transferred to a company limited by guarantee (CLG).

Loh said SPH holds a "very attractive portfolio" with recurring income. Keppel will also help to make SPH's portfolio more "capital efficient" by monetising certain non-core assets and securitising some core assets, he said.

The higher cash consideration is expected to increase Keppel's pro forma net gearing by 0.03 times after the transaction. But the group's pro forma net gearing is expected to remain below 1 time, which Loh said will leave "adequate capacity" for the group to pursue other business opportunities.

The higher cash offer will also not impede the potential merger between Keppel's offshore and marine (O&M) arm and Sembcorp Marine, said Loh. He added that Keppel's asset monetisation plan is well on track, and this will help bring the group's gearing down quickly.

The new offer will also not have any impact on Keppel's dividend for 2021.

SPH received a potential offer of S$2.10 per share by Cuscaden Peak - a consortium backed by Hotel Properties, businessman Ong Beng Seng, and 2 Temasek-linked entities, CLA Real Estate Holdings and Mapletree, in late October.

Despite the rival offer or any other offers that might surface, SPH will hold a scheme meeting by Dec 8 for shareholders to decide on Keppel's offer. If the deal is approved, shareholders are expected to be paid their considerations by the middle of January next year.

Analysts generally cheered the higher offer price from Keppel, and are expecting the deal to go through.

DBS analyst Ho Pei Hwa said the revised offer is "strategic and remains financially attractive to Keppel" despite the higher consideration. Based on DBS's last estimated revalued net asset value for SPH at S$2.49 per share, the price revision means the accretion to Keppel could decline to S$0.12 per Keppel share from S$0.34 previously, said Ho.

"Keppel is well-positioned to unlock value of SPH assets given the existing partnership and the sizeable and visible assets on SPH's books which are ripe for securitisation," she said.

KGI analyst Joel Ng said Cuscaden is unlikely to match Keppel's offer, given that Cuscaden will not have the same synergies that Keppel will have with SPH's assets. Such synergies, he said, include M1 - which has SPH and Keppel as shareholders - and data centres.

Justin Tang, head of Asian research at United First Partners, said the rival bids appeared to be a case of "sibling rivalry rather than arranged marriage".

"Keppel's revised offer sets a new precedent for Temasek-related entities in relation to a competitive situation," he said. "I cannot recall when Temasek-related entities competed against each other in such a context."

READ MORE:

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• SPH open to considering all offers that are better than Keppel's: CEO
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• BT Explains: Why is Ong Beng Seng interested in SPH?
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