Keppel offers to privatise SPH at S$3.4b valuation; contingent on media business carve-out

KEPPEL Corporation on Monday made a privatisation offer for Singapore Press Holdings' (SPH) non-media business through a scheme of arrangement, subject to SPH shareholders first approving the latter's media restructuring plan. The deal values SPH at S$3.4 billion with Keppel's share of the deal totalling S$2.2 billion.

Under the scheme, SPH shareholders will receive a total consideration of S$2.099 per share. This will comprise cash of S$0.668 per share, 0.596 Keppel Reit unit (valued at S$0.715) and 0.782 SPH Reit unit (valued at S$0.716) per share.

The scheme will require approval from both SPH and Keppel shareholders. If it goes through, SPH will be delisted and will become a wholly owned subsidiary of Keppel. Keppel will hold stakes of about 20 per cent in both SPH Reit and Keppel Reit.

The offer price represents a 39.9 per cent premium to the last traded price of S$1.50 per share before a strategic review of SPH's businesses was announced on March 30. It is also an 11.6 per cent premium to the last traded price of S$1.88 per share on July 30, and a 21.4 per cent premium of the three-month volume weighted average price of S$1.729 per share.

The offer price is also equivalent to SPH's adjusted net asset value per share excluding the media business.

Shareholders will also receive any final dividend that may be declared by the board for FY2021.

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In a media briefing on Monday, SPH's chief financial officer Chua Hwee Song said Keppel's proposal was selected after evaluating many proposals in a "competitive two-stage process", in which more than 20 potential bidders had participated. Keppel was selected because it delivered the highest value for shareholders, and was superior across all criteria, he added.

Various strategic options for SPH were reviewed, including maintaining the status quo, monetisation of certain assets, a partial sale, or privatisation of SPH post-media restructuring, according to SPH in a press statement. 

To maximise value and minimise disruption for shareholders, the board had concluded that privatisation of the entire company would be the preferred solution.

"It derives a better valuation outcome for all shareholders where a control premium is paid for the entire company," the company said.

It will also avoid a situation in which prime SPH assets are cherry-picked, leaving SPH with its existing debt and the risk of being unable to monetise its remaining assets.

Receiving SPH Reit units and Keppel Reit units would allow shareholders to participate in the recovery upside of the retail and commercial property sectors at attractive dividend yields, SPH added.

The scheme will only take effect upon a successful completion of the proposed media restructuring. SPH had in May announced a plan to transfer its media business to a company limited by guarantee (CLG), amid the ongoing challenge of falling advertising revenue.

The transfer of the media assets to the CLG is subject to SPH shareholders' approval at an extraordinary general meeting (EGM) expected to be convened in August or September this year. Should it be approved at the EGM, the competion of the restructuring is expected to occur by December.

Keppel's offer may sweeten the media restructuring proposal for SPH shareholders. SPH's chief executive officer Ng Yat Chung said: "I think it's helpful to persuading our shareholders to vote for the proposed restructuring of the CLG."

Having an offer on the table with a "specific value" will help shareholders with their decision-making, he added.

If SPH shareholders choose not to support the deal, it will be business as usual. SPH would then continue to invest in the media business and attempt to overcome the challenges for declining print revenue while growing the non-media business, according to Mr Ng. 

"On the other side, if they vote for the restructuring of the media business then it's an opportunity to take advantage of this privatisation by Keppel," said Mr Ng. 

SPH will appoint an independent financial adviser for the independent directors, who will make their final recommendation to shareholders on the Keppel scheme.

SPH also intends to seek consent from noteholders through a consent solicitation process in relation to certain terms and conditions of the notes and the trust deed constituting the notes. It will run a formal consent solicitation exercise and details will be provided in due course. This consent of noteholders is, however, not a condition for the scheme.

Credit Suisse is the financial advisor while Allen and Gledhill is the legal advisor to SPH for the strategic review and the proposed transaction.

In response to queries on SPH chairman Lee Boon Yang's role in the proposed deal, given that he had served as Keppel's chairman from 2009 to 2021, Mr Ng said Dr Lee had recused himself from any decision-making or discussions relating to the details of the deal.

Mr Lee stepped down from Keppel's board in April, shortly after SPH announced a strategic review but before the proposal for the CLG was released.

Said Mr Ng in a press statement: "The outcome is the result of a strategic review process that has taken place over many months. We took the first step with the media restructuring to ensure a sustainable future for the media business, while removing the losses from SPH. The next step was a thorough process to unlock and maximise value for all shareholders for the remaining company. With the privatisation offer from Keppel, shareholders now have an opportunity to realise the value of their SPH shares at a premium."

Market watchers and analysts said that the deal is reasonable and is likely to come through. 

"The consideration gets investors a slightly higher yield than they would have been expecting out of SPH, assuming they reinvest the cash into a yield product," said Travis Lundy, an analyst at Quiddity Advisors, which publishes on SmartKarma.

Aside from any final dividend that may be declared by the board for FY2021, shareholders will also be able to benefit from steady dividend yields in the 4 per cent range by SPH Reit and Keppel Reit.

An investor holding 1,000 SPH shares for the past three calendar years would have received S$275 in dividends, according to Bloomberg data. Meanwhile, holding 596 Keppel Reit units and 782 SPH Reit units over the same period would theoretically have given an investor around S$200 in dividends.

"This pays a decent premium to the non-SPH Reit assets on a mark-to-market basis, clears the debt, and as far as I can tell, it is about as good as SPH investors are going to get," said Mr Lundy. 

OCBC Investment Research noted in a report that the transaction "strikes a balance between maximising value and minimising disruption for shareholders".

"In our view, the deal looks fair in both unlocking value for SPH shareholders and avoiding a situation where prime assets may be cherry-picked, while the receipt of SPH Reit and Keppel Reit  units will allow shareholders to still participate in the recovery prospects of the retail and commercial real estate segments at attractive dividend yields," wrote OCBC Investment Research. 

SPH owns and publishes The Business Times, which will be part of the proposed CLG.

READ MORE:

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