Hot stock: SPH loses 15.1% on media restructuring plan

SHARES of T39 fell as much as 15.6 per cent after the market opened on Friday, on news of the group's proposed restructuring.

The counter had closed at S$1.79 on Wednesday before a trading halt was called on Thursday, during which the company announced a plan to carve out its media business into a not-for-profit entity. SPH, which publishes The Business Times (BT), said the proposed restructuring is intended to preserve and grow its media business while allowing shareholders to realise more value from their holdings.

SPH shares opened lower on Friday by S$0.28, with no married deals recorded in early trade, according to ShareInvestor data. After recovering a smidgen, the counter closed at S$1.52, down by S$0.27 or 15.1 per cent on the day before.

The company's media deal, which is subject to shareholders' approval, will involve a transfer of the business to a not-for-profit entity in the form of a company limited by guarantee. SPH said it will make an upfront capitalisation of S$110 million to the new entity, in the form of a cash injection of S$80 million, and S$30 million worth of SPH shares and SPH Reit units.

A number of questions regarding the deal have been raised by SIAS (Securities Investors Association Singapore) chief executive David Gerald.

In a commentary published by BT on Friday, Mr Gerald asked if it was premature for SPH to divest and deconsolidate its media segment "even before the fruition of its media initiatives".

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He also said shareholders may be "confounded" by SPH's S$110 million commitment - which he refers to as a "parting gift" - to the new entity, if the media segment was viewed as revenue-generating and able to turn profitable over time.

Suggesting that the media business could be more beneficial as a privatised entity or sold to a strategic party, Mr Gerald asked for more explanation for the deconsolidation, and for SPH to clarify the roles of both the group and SPH Reit.

"It would also be necessary for SPH to distinguish itself in this highly competitive space. The outcome of this proposal will be determined by shareholders, who will vote on the resolution at the extraordinary general meeting," he added.

Several analysts reacted positively to the deal. CGS-CIMB's Eing Kar Mei said the restructuring would remove the "drag" from the media business and free up SPH's resources to focus on other businesses.

Without the media business, the listed entity would also have more freedom to "tailor its capital and shareholding structure to seize strategic growth opportunities". Currently, the Newspaper and Printing Presses Act prohibits an individual from acquiring more than 5 per cent of SPH's shares without approval from the Minister for Communications and Information.

CGS-CIMB has an "add" call on SPH and a target price of S$2.09, pending the completion of the exercise. Factoring in the costs of the restructuring and excluding the value of the media business, its target price would fall to S$1.94.

OCBC Investment Research also said it is "positive longer term" on the proposal, not only because of the removal of the overhang from the struggling media business, but also because of the potential for further unlocking of value. "Management had indicated its strategic review was not confined to only the media business," OCBC said.

OCBC has a "hold" call and a fair value of S$1.92 for the stock.