Offer price for Jardine Strategic at significant discount to NAV
ANALYSTS have noted that 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 through 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
He 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 in which value for the family was maximised.
The analyst noted that the offer made below net asset value would enable Jardine Matheson to capture value from the minority shareholders. "It is a cheaper alternative to a full buyout of (Jardine) Matheson," he stated.
Also, 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.(see clarification note)
The head of Asian research at United First Partners, Justin Tang, told The Business Times: "(The) offer price is too cheap, its listed investments are worth at least US$40."
Jardine Matheson stated in the pre-trading announcement on Monday that the Jardine 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, and 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 deal, putting the value of the 15 per cent stake in Jardine Strategic at US$5.5 billion and to become effective by end-April, is deemed "done and dusted" given that Jardine Matheson with its majority stake will vote in favour of the acquisition.(See Amendment note)
On completion, Jardine Matheson will wholly own Jardine Strategic, which will not be holding a stake in Jardine Matheson any more.
Singapore's blue-chip barometer, the Straits Times Index (STI), will have a slot open up 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, Mr Freitas noted.
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.
Clarification note: An earlier version of this story incorrectly said that Mr Blennerhassettt noted the headcount test remains the outstanding risk to deal completion. He has since corrected this to say it was an error in his assessment. The article above has been revised to reflect this.
Amendment note: An earlier version of this article stated that the deal put the value of Jardine Strategic at US$5.5 billion, it is the 15 per cent stake in Jardine Strategic that is valued at US$5.5 billion. The article above has been revised to reflect this.
