Offer to privatise SPH's non-media assets reasonable, say analysts
But there is some uncertainty as to whether SPH shareholders will be able to realise the full value of their shares
Claudia Tan HS
Singapore
KEPPEL Corporation's S$2.2 billion bid to privatise Singapore Press Holdings' (SPH) non-media business is reasonable, analysts said, although there is some uncertainty as to whether SPH shareholders will be able to realise the full value of their shares given that the consideration is not fully in cash.
The deal, which values SPH at S$3.4 billion, will take place through a scheme of arrangement, subject to SPH shareholders first approving its media restructuring plan.
Under the scheme, SPH shareholders will receive a total consideration of S$2.099 for each SPH share they own consisting of: cash of S$0.668, 0.596 Keppel Reit unit (valued at S$0.715) and 0.782 SPH Reit unit (valued at S$0.716).
SPH shareholders will also be entitled to any final dividend that may be declared by the board for FY2021.
"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.
An investor holding 1,000 SPH shares for the past three calendar years would have received S$275 in dividends, Bloomberg data showed.
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.
United First Partners' head of Asian research Justin Tang said that the structure of the deal incentivises SPH shareholders to vote in favour of the media restructuring.
"While SPH Reit is traded on exchange with a mark-to-market value, SPH's other ex-media assets are not. The contemplated transaction puts a monetary figure on these assets and yet allows shareholders to retain some exposure to future potential upside," he added.
UBS said in a report that its initial view of the deal in terms of valuation paid is that it appears more attractive for SPH than it does for Keppel shareholders, as the transaction allows SPH to "crystallise market valuation for its assets".
The upside to Keppel's shareholders, on the other hand, would stem from its plans to enhance and monetise the acquired assets.
But Phillip Securities senior research analyst Terence Chua said that SPH shareholders may not necessarily be able to realise the full value of the total consideration of S$2.099 per share. This is because the non-cash portion - in the form of SPH Reit and Keppel Reit units - is subject to market volatility and fluctuations, compared with a "clean cash deal".
OCBC Investment Research said that there might be disappointments in value-unlocking initiatives, which could result in share price pressure given the recent burst of optimism following the launch of SPH's strategic review.
There could also be some selling when shares of SPH resume trading on Tuesday.
The counters of SPH, Keppel, SPH Reit and Keppel Reit were halted on Monday morning, but the halts were lifted in the evening.
Given that Keppel sees the offer as a really good deal for it to be able to enhance the value of the SPH assets, it means that SPH shareholders "aren't getting that value" unless they sell their SPH shares for Keppel shares, said Mr Lundy.
He noted that existing shareholders of SPH could decide to "take their money and run on the pop".
Keppel had said that the deal is a "rare" and "unique" opportunity to tap SPH's "quality portfolio", and to speed up growth, scale up and gain capabilities focus areas such as asset management, urban development and connectivity.
Indeed, there is some flexility for SPH shareholders to sell their Reit units after the transactions, said Mr Tang.
The Keppel Reit scrip component means that SPH shareholders will have to take a view on the commercial property sector, he added.
Another point of consideration for shareholders is the potential merger between Keppel Reit and SPH Reit in the future, noted Mr Tang, adding that there is a "strong likelihood" for the merger given the recent trend of Reit consolidation.
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