SMRT privatisation offer fair and reasonable: IFA, IDs

THE independent directors (IDs) of SMRT Corporation have unanimously recommended that minority shareholders vote in favour of Temasek Holdings' offer to take SMRT Corporation private through a scheme of arrangement.

They concur with independent financial adviser (IFA) Rothschild (Singapore)'s opinion that the offer - made through the Singapore investment company's wholly owned subsidiary Belford Investmens - is fair and reasonable from a financial standpoint.

Minority shareholders can choose to sell their shares in the open market if they are able to obtain a price higher than the scheme price of S$1.68 a share, after taking into consideration related transaction expenses.

In a scheme document that SMRT submitted to Singapore Exchange (SGX) on Tuesday, the IFA concluded that the scheme price represented a premium over various metrics used.

"The scheme price represents a premium of approximately 10.8 per cent, 10.7 per cent, 8.7 per cent, and 15.5 per cent respectively over the volume weighted average price of the shares in the one-month, three-month, six-month and 12-month periods preceding the joint announcement date."

Rothschild pointed out that the scheme price was a premium of about 8.7 per cent to the closing price of S$1.55 on the last trading day before the announcement of the scheme.

The scheme price also represented a premium of about 24.4 per cent to the median broker research price target of S$1.35 before the joint announcement date, and a premium of about 23.5 per cent to the median broker research target price of S$1.36 as at the latest practicable date.

Rothschild said: "The terms of the scheme from a financial point of view are fair and reasonable so far as the scheme shareholders are concerned."

The IDs said that the scheme shareholders should be aware that there was no assurance that the trading volumes and market prices of the scheme shares would be maintained at the current levels prevailing as at the latest practicable date, if the scheme did not become effective.

"In the event the scheme becomes effective, it will be binding on all scheme shareholders whether or not they were present in person or by proxy or voted at the scheme meeting. Scheme shareholders should also be aware and note that there is currently no certainty that the scheme will become effective and binding."

SMRT said that the scheme meeting will be convened on Sept 29, 3.30pm, at The Star Theatre, Level 5.

It will take place after the NRFF EGM, which will begin at 2.30pm. This is the extraordinary general meeting of the company in relation to the proposed sale of its operating assets, in connection with the contemplated transition from the current rail financing framework to the new rail financing framework (NRFF).

The scheme document outlined reasons why Temasek sought to take SMRT private: significant risks and challenges under the NRFF, often beyond SMRT's control; the larger challenge of an ageing network; preference for SMRT to have greater flexibility as a private company to focus on its core role of delivering a safe and reliable service during this transition phase, and ensuring high standards of operational excellence; and an opportunity for minority shareholders to receive a cash offer and avoid the uncertainties of the regulatory transition.

The scheme meeting - through a shareholders' vote - will determine if Belford will acquire SMRT at S$1.68 apiece. Temasek owns about 54 per cent of SMRT, and cannot vote on Belford's proposal at the meeting.

Should the scheme be approved by the scheme shareholders and the court, the shareholders will receive S$1.68 a share within seven business days from the date the scheme becomes effective. SMRT shares will no longer be traded on SGX. If the scheme is not successful, Belford will not acquire any shares or make any payments under the scheme. SMRT shares will continue trading on SGX.

Scheme shareholders can attend the scheme meeting in person, or appoint a proxy to vote at the meeting.

On July 20, SMRT and Temasek jointly announced the S$1.18-billion buyout of SMRT, following which several analysts have recommended that SMRT shareholders accept the offer.

CIMB said in a note: "The privatisation should give SMRT more flexibility to focus on its primary role as a transport service provider, without the pressures of a listed company, during its transition to the NRFF."

OCBC said that the offer presents a good opportunity for investors to "cash out at a premium", but also warned of the proposed buyout falling through. It said in a note: "We advise investors to look for opportunities to sell part of their holdings in the open market closer to S$1.68."

On Tuesday, SMRT shares closed flat at S$1.655.