WHEN United Industrial Corp (UIC) made a takeover offer for its 80.36 per cent subsidiary Singapore Land (SingLand), it seemed to be a breeze to cross the 90 per cent threshold for compulsory acquisition to take place.
All was well and good when UIC's independent financial adviser ANZ termed the offer as "fair and reasonable" and shareholders were advised by independent directors to accept the offer.
But many eyebrows were raised when SingLand's second-largest shareholder, Silchester International, threw a spanner into the takeover bid by selling 13.25 million SingLand shares on the open market.
The transaction lowered the US-based fund's holding to about 4.95 per cent, down from a substantial 8.16 per cent. The move by Silchester also meant UIC having to acquire more than 9 per cent of outstanding shares for the delisting to take place.
Earlier, UIC would need to secure only just above one per cent of the shares from the free float as Silchester's substantial 8.16 per cent stake was not deemed to be part of the public float under SGX listing rules. Under Singapore rules, it is deemed that a company needs to delist if less than 10 per cent of its shares are in the public float.
While UIC will still be able to seek a voluntary delisting of SingLand if it does not garner sufficient shares in SingLand, the move by Silchester has raised the question of whether the exit offer was fair.
Looking at the way the share price of SingLand has responded to the offer, it would appear that investors do not agree with the offer price of $9.40 a share. SingLand shares have been trading above the offer price on most days since the offer date. This would defy logic given that UIC has already said it will not revise the offer price.
When considering the fairness of a takeover offer, the independent financial adviser typically looks at past transactions over one year.
While this is common market practice, the outcome in this case is a list of companies across vast industries that are not exactly comparable. The delisting of some Chinese companies last year also skewed the list somewhat with their lower offer premiums.
Even going by this not-all-perfect list of comparables, the offer premium for SingLand is lower than the median seen for successful delisting offers and privatisation offers last year.
If one were to narrow the list to purely Singapore-based developers that have delisted in the past few years, the companies making the list would be MCL Land, Allgreen, and SC Global.
By comparing the offer premium for SingLand with the offer premiums for these companies, it would appear that UIC's offer price for SingLand represents a measly premium of 11.2 per cent over the last transacted price before the offer date, compared with the takeover offer premiums of 25.6 per cent for MCL, 39.13 per cent for Allgreen and 49.4 per cent for SC Global.
The premium gap would be wider when we look at the offer premium over a one-year volume weighted average price (VWAP). It would be 7.85 per cent for SingLand, compared with 30.2 per cent for MCL, 43.2 per cent for Allgreen and 71.1 per cent for SC Global.
Arguably, market conditions are now different from those prevalent when the takeover offers for the other property companies were made. But the softening property market sentiment should already have been priced into the share price of SingLand. Hence, it would not be fair to say that a smaller offer premium is justified because of weaker market conditions.
The starkly smaller premium for SingLand becomes less justifiable when one considers that shares of MCL, Allgreen and SC Global all had a strong run-up of more than 50 per cent over the preceding one year prior to their offer dates - this again reinforces the argument that stronger market conditions then were priced into the shares of those property counters.
It could be that MCL, Allgreen and SC Global's larger free floats at the time of their delistings meant that a more compelling offer was required to gain sufficient acceptances from shareholders.
But the rather small pool of public investors in the case of SingLand should still deserve their fair share of returns for having stuck with the company through past property cycles.
Minority shareholders of SingLand risk being worse off holding illiquid stocks if they choose not to accept UIC's offer by the close of the offer. They are perhaps better off accepting the offer and use the cash to buy into a higher yielding property stock.
Yet, at the same time, they are finding the exit offer from UIC less appealing, relative to the gains of shareholders of other property developers that delisted.
UIC probably realises that minority shareholders need more time to decide on the offer when it extended the closing date for the offer from April 7 to April 21.
But whether it realises how its offer is viewed by other investors remains a big question mark. Hopefully, the exit of SingLand from the Singapore bourse will not leave shareholders with a bitter aftertaste when it is within UIC's means to make the parting sweeter.