Jardine Strategic offer is 30% off net asset value; deal could affect ST Index
But Jardine Matheson's US$5.5b deal set to go through given size of its stake; move could see Frasers Logistics & Commercial Trust join STI: analysts
Singapore
ANALYSTS have noted the offer price of US$33 for Jardine Strategic Holdings is at a significant discount to its net asset value for a done deal through which the Jardine empire will untangle its decades-old cross-holding with Jardine Matheson Holdings buying out the remaining stake in Jardine Strategic.
Analyst Brian Freitas, who publishes on Smartkarma, said that the offer price represents a 30 per cent discount to Jardine Strategic's estimated net asset value of US$46.67 a share, even though it is a 20.2 per cent premium to the close of US$27.45 last Friday
Mr Freitas noted Jardine Strategic was trading near the lower end of its range over the last six years.
David Blennerhassett of Quiddity Advisors, a Smartkarma contributor, thinks that the controlling Keswick family behind the diversified group might not have a need to immediately restructure the empire, but the ultimate restructuring of the group would most likely be done in a way where value for the family was maximised.
The analyst noted the offer made below net asset value would allow Jardine Matheson to capture value from the minority shareholders.
"It is a cheaper alternative to a full buyout of (Jardine) Matheson," Mr Blennerhassett said.
He sees it maintaining the group ownership levels in Strategic-held subsidiaries, while raising the controlling Keswick family's ownership in the group from what he estimated to be 17.5 per cent to about 43 per cent.
Justin Tang, United First Partners' head of Asian research, told The Business Times: "(The) offer price is too cheap, its listed investments are worth at least US$40."
He noted dissenting shareholders are entitled to apply to the Bermuda courts to have the fair value of the shares appraised.
Jardine Matheson stated in a pre-trading announcement on Monday that the diversified group will simplify its structure by acquiring the rest of the stake it does not own in Jardine Strategic and then delist the counter, which has a secondary listing in Singapore.
Jardine Matheson owns 84.9 per cent of Jardine Strategic, while Jardine Strategic owns 59.3 per cent of Jardine Matheson.
Jardine Strategic owns 50.4 per cent of Hongkong Land, 77.6 per cent of Dairy Farm, 79.5 per cent of Mandarin Oriental and 75 per cent of Jardine Cycle & Carriage.
The US$5.5 billion buyout deal is to become effective by the end of April, and is deemed "done and dusted" by Mr Blennerhassett, given that Jardine Matheson with its majority stake will vote in favour of the acquisition.
On completion by way of an amalgamation, Jardine Matheson will wholly own Jardine Strategic, while the latter will not be holding a stake in Jardine Matheson any more.
Jardine Matheson and Jardine Strategic will be announcing their FY2020 preliminary results on March 11. Jardine Matheson said it expects the performance "to be in line with market expectations, with full-year underlying net profit of US$1,085 million and underlying earnings per share of US$2.95".
Jardine Matheson will consolidate all of Jardine Strategic's profits as a wholly-owned subsidiary. On a pro forma basis, this would have resulted in Jardine Matheson's 2020 underlying net profit increasing by approximately US$83 million, Jardine Matheson said in the statement.
The increase in earnings per share will lead to an improvement in dividend cover while allowing for some uplift in dividends, which will be assessed at the time of the 2021 final results, added Jardine Matheson.
Group managing director of Jardine Matheson, John Witt, said in an analysts call following the announcement that minority shareholders have been limited to realising value by selling Jardine Strategic shares through the market, given that Jardine Matheson already owns almost 85 per cent and the minimum free float for Jardine Strategic is 15 per cent.
Also, he noted, due to the free float restriction, there has therefore been no headroom for further buybacks in Jardine Strategic shares.
As a result, and the fact that the group is in a very strong financial position for this opportunity, coupled with an "attractive" cost of debt, the acquisition offer in cash was made, Mr Witt said.
Mr Tang said globally, there has been a move towards unwinding complicated holding company structures.
Mr Freitas said Singapore's blue-chip barometer the Straits Times Index (STI) will have a slot open should Jardine Strategic be delisted: the candidate likely to replace it is Frasers Logistics & Commercial Trust, which had the highest full market capitalisation among the five stocks on the reserve list. Therefore, he sees it a logical play to buy Frasers Logistics & Commercial Trust. Passive funds will need to buy 17.69 million shares of the stock should the trust make it to the STI.
Singapore Exchange stated in a market update on Monday that the STI Reserve stock with the highest market cap at the close two days prior to the Index deletion of Jardine Strategic will join the STI.
Mr Blennerhassett sees simplifying the group structure may be a precursor to privatising Mandarin Oriental International, which has a secondary listing in Singapore and in which Jardine Matheson will hold 79.5 per cent directly after the corporate restructuring.
He noted the counter is trading at 0.6 time its price to book. The counter closed 1.2 per cent higher at US$1.69 on Monday.
Shares under the Jardine Strategic stable rallied, with Hongkong Land 1.23 per cent higher at US$4.94, Jardine Cycle & Carriage rose 4.16 per cent to S$22.80 and Dairy Farm up 8.05 per cent to US$4.70.
Jardine Matheson and Jardine Strategic both were at 52-week highs at US$62 and US$32.80 respectively, up 15.48 per cent and 19.49 per cent.
Total returns including dividends reinvested for Jardine Matheson and Jardine Strategic since 1990 were 13.4 per cent and 12.9 per cent annually.
READ MORE:
