Privatisation offers continue, but shareholders increasingly discerning

WEAK market sentiment and depressed stock market valuations are motivating substantial shareholders to take Singapore-listed companies private, with 10 such deals announced this year – continuing a multi-year trend. But as the impact of Covid-19 wanes, the market is showing signs of resisting offers that are particularly opportunistic.

Shareholders appear to be paying closer attention to details of takeovers, and are chasing better deal terms. This has resulted in offerors hiking their offer prices, extending offer deadlines, or having to shelve their plans altogether.

Justin Tang, head of research for Asia at United First Partners, said some offerors are buying out companies because they “clearly see a mismatch in the company’s intrinsic value, future prospects and the stock price”.

“Shareholders have caught on,” he added. “Offerors and their financial advisors would do well to factor this into their offer prices and deal structures.”

Robson Lee, a senior corporate lawyer, said the “current generation of investors” is also paying more attention to details. In the past, investors tended to make decisions about an offer based on “herd instinct” or “hearsay”.

But more of them are attending to details provided in the independent financial advisor’s report, and trying to decide for themselves if an offer price is fair and reasonable by considering the likes of the company’s financial statements, historical share price, price-to-earnings ratio and net tangible asset value.

RHB Singapore analyst Vijay Natarajan said pressures for listed companies have been rising over the years. For instance, growing investor activism amid the availability of digital tools have narrowed the information gap and increased awareness among retail shareholders.

Investors are now scrutinising deals closely and pushing back on some of the opportunistic low ball offers. “This is, in general, a positive trend in our view, provided that investors don’t get greedy,” said Natarajan.

An attempt to take Frasers Hospitality Trust (FHT) private was recently scuppered by unitholders.

Stapled securityholders representing 74.88 per cent of units voted in favour of the proposed scheme, narrowly missing the required 75 per cent.

Lee pointed out that FHT’s case was not that of a “lowball” offer failing, but appears to be more of a case of its investors banking on the recovery of the hospitality sector and choosing to “hang on” to their stapled securities.

Other privatisation offers have required offerors to revise their offer prices in order to entice shareholders. Notably, an offer by a consortium consisting of shareholders and directors to take GYP Properties private underwent 2 revisions: taking the offer price from S$0.168 to a final offer of S$0.20 on Sep 14.

In response to a query from The Business Times on the price revisions, a spokesperson from the consortium, Rumah & Co, said: “Having achieved over 80 per cent of acceptances and nearing our goal of privatisation, the consortium decided to make a final offer with an increased price of S$0.20, which we believe is an attractive premium over the last trading price.”

Hwa Hong Corporation and Allied Technologies are 2 other examples of companies that saw offerors revise their prices.

In March and May, respectively, Singapore O&G and TTJ Holdings saw successful privatisations. This was, however, not without the extension of their deadlines.

A takeover is not an easy transaction by any stretch, said Lee. Any delays in the process could jack up the cost of these transactions, which tend to be “calculated, strategically-priced” deals that are based on the acceptance of shareholders.

Tang of United First expects more privatisation transactions in the near term.

“The macro environment means that valuations are undemanding at the moment,” he said. “Owners or managers of companies are more clued into a company’s long term prospects versus an outsider. This is a golden opportunity to buy at the proverbial low.”

Lee pointed out that Singapore listcos today increasingly have to beef up their disclosures, and keep up with enhanced rules and stricter regulatory requirements. Delisting could give a company other alternatives, such as raising funds from family offices and institutional investors, without the regulatory scrutiny.

RHB’s Natarajan said investors who receive an offer for their shares should look into the “deal valuation basis” – namely the price-to-book or price-to-earnings multiples – as well as how these compare to similar deals in the market or past transactions.

“This should be overlaid with company specific-outlook or challenges and prevailing market conditions to evaluate if the offer is fair,” he added.