THE S$3.4 billion deal announced by two of Singapore's most established companies, Keppel Corp and Singapore Press Holdings (SPH), would allow the former to grow its asset base and earnings.

Meanwhile, SPH shareholders would also have an incentive to vote through the proposed restructuring of its media business.

The proposed scheme of arrangement - contingent on SPH first obtaining shareholder approval to transfer its media assets to a company limited by guarantee (CLG) - would result in SPH delisting and becoming a wholly-owned subsidiary of Keppel.

Keppel's share of the deal is S$2.2 billion, to be satisfied with S$1.08 billion in cash and the remainder in units of Keppel Reit. This works out to a cash consideration of S$0.668 and 0.596 Keppel Reit units (valued at S$0.715) per share.

Meanwhile, shareholders will also receive 0.782 SPH Reit units (valued at S$0.716) per share from a distribution in specie by SPH, amounting to a total value of S$1.2 billion.

GET BT IN YOUR INBOX DAILY

Start and end each day with the latest news stories and analyses delivered straight to your inbox.

Sign UpVIEW ALL

SPH shareholders will hence receive a total consideration of S$2.099 per share - implying an 11.6 per cent premium over SPH's last close of S$1.88 - and roughly equal to the net asset value of SPH post the media business restructuring.

Keppel CEO Loh Chin Hua said on Monday that SPH represents a "rare and attractive opportunity" for Keppel to acquire a quality platform that is not only financially attractive, but also strongly aligned with and complementary to Keppel's business model and capabilities.

For SPH, meanwhile, the deal represents a potential sweetener in favour of the media restructuring.

In May, SPH had announced a plan to carve out its media business amid the ongoing challenge of falling advertising revenue. The plan included a provision of funding for the media business, which includes The Business Times.

Shareholders are expected to vote on this plan at an extraordinary general meeting (EGM) expected to be convened in August or September this year.

SPH chief executive Ng Yat Chung said that having the offer from Keppel on the table would be helpful to persuade 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 they do vote for the restructuring of the media business, then it's an opportunity to take advantage of this privatisation offer by Keppel," Mr Ng said.

The proposed media restructuring releases SPH from shareholding restrictions under the Newspaper and Printing Presses Act (NPPA), and increases the strategic options available to SPH.

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.

More than 20 bidders had approached SPH with various proposals, SPH chief financial officer Chua Hwee Song said, and Keppel was selected because it delivered the highest value for shareholders, and was superior across all criteria.

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.

David Gerald, president of Securities Investors Association Singapore (Sias) noted that the consideration represents a slight discount to SPH's net asset value, but added that both parties believe this is a win-win solution.

Initial responses from analysts appeared positive.

Phillip Securities analyst Terence Chua said the acquisition of SPH was not expected, but he noted there are synergies between both companies.

"The transaction, if completed, will be earnings accretive to Keppel already," he said. "They will also increase the recurring income base from 51 per cent to 56 per cent post-acquisition, so it's in line with their strategy to really be asset light and also to have more recurring income to distribute to shareholders".

Meanwhile, Travis Lundy, an analyst at Quiddity Advisors, which publishes on SmartKarma, said: "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)".

The proposed deal is expected to be completed in December this year, and is subject to approval from both Keppel and SPH shareholders at separate meetings.

SPH would need 75 per cent of the shareholders present and voting to approve the scheme, while Keppel would require a 50 per cent threshold.

Keppel Corp, Keppel Reit, SPH and SPH Reit called for trading halts on Monday morning, before the market opened.

All four counters closed higher on Friday. Keppel was up 1.9 per cent or S$0.10 to S$5.49, while Keppel Reit was up 0.8 per cent or S$0.01 to S$1.20. SPH gained 1.1 per cent or S$0.02 to end the week at S$1.88 and SPH Reit rose 0.6 per cent or 0.5 Singapore cents to 91.5 cents.