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Wheelock Properties parent offers S$2.10 per share to privatise developer; stock hits S$2.19

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Ardmore Three, a freehold development by Wheelock Properties.

SHARES of Wheelock Properties (Singapore) jumped on Thursday after its Hong Kong-listed parent made a S$2.10 per share offer to take the mainboard-listed property developer private.

The voluntary offer by Wheelock and Company, which already owns 76.21 per cent of the company, is unconditional. The deadline for the offer has not been announced, but DBS - which has been appointed as financial adviser to the offeror - said that the earliest expected closing date will be Sept 7.

Such a price values the company at some S$2.51 billion, with a back-of-the-envelope sum showing that Wheelock and Company would fork out S$597.7 million for all the shares it does not already own.

Wheelock Properties jumped at the opening bell on Thursday, after a trading halt was lifted, to breach the S$2.10 offer price. By 2.30pm, the counter was up to S$2.19 - a gain of S$0.45, or 25.9 per cent - as investors seemed to bet on the offer price going up.

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The offer price - higher than any closing price since January 2010 - marks a premium of 20.7 per cent over the counter's previous close at S$1.74 on July 13, ahead of the trading halt.

The price is also up by 13.3 per cent over the shares' 12-month volume-weighted average price, while the implied price-to-net asset value (NAV) multiple of 0.78 times is higher than historical averages over the past 10 years, according to the offer announcement. Adjusting for a six-cent final dividend paid out in May, the tweaked price-to-NAV ratio goes up by a smidgen, to 0.8 times.

Wheelock Properties owns Scotts Square and Wheelock Place in Orchard Road. Its recent residential property developments include The Panorama and Ardmore Three, alongside other projects in the portfolio, such as Grange Residences and Parc Oasis.

Wheelock and Company said that, if it could delist Wheelock Properties, there would be more flexibility to manage the business, optimise the use of its management and capital resources, and make any operational changes. It also noted that privatisation would give the owner and management a "longer time horizon to manage and plan" the company's business.

The offer announcement also touted the takeover bid as an opportunity for investors to cash out amid low trading liquidity, noting that the average daily trading volume has represented just 0.053 per cent of all issued shares over the past year.

Deborah Ong, an analyst at OCBC Investment Research, told The Business Times that she was unsurprised by the offer, especially after the real estate sector slump on recent cooling measures.

The company "has been trading with a depressed price-to-book valuation (and) has a strong shareholder with a majority controlling interest, as well as a net cash position", she said. "All these traits make it ripe for the picking."

But Ms Ong added: "We believe the offer price of S$2.10 came in at the low end, and it is 10.3 per cent below our fair value of S$2.34."

Royston Foo, who covers real estate for Smartkarma, said that he found the buyout offer "a compelling one" but noted that the offer price fell below his fair value estimation of S$2.66.

"There seems to be room for the offeror to raise its offer price to further entice shareholders to accept the offer," he told BT, adding that the latest share price increase "seems to indicate an expectation of a possible higher offer price".

Mr Foo also pointed to the fragmented minority share ownership as a possible challenge to the offeror reaching the 90 per cent threshold for compulsory acquisition. "Investors are likely to hold on to their shares as they observe the level of acceptances and wait for a possible revision of offer. In such a situation, Wheelock and Company will be forced to sweeten the offer to get more acceptance," he said.

Various stock watchers have been eyeing a potential buyout of the company for some time. Back in June 2017, Phillip analyst Peter Ng had called Wheelock Properties a "prime privatisation candidate", as the house initiated coverage with a "buy" call and a S$2.28 target price.

Shareholders who accept the offer will be paid within seven business days of their valid acceptances being received, said the offer announcement on Thursday.

The offer document will be sent to shareholders in between two and three weeks' time. The Wheelock Properties board will also appoint an independent financial adviser to advise its independent directors, and their advice and recommendations will be shared with shareholders in a forthcoming circular.

The board has advised shareholders to exercise caution when dealing with their shares. Shareholders have been asked to refrain from taking any action "which may be prejudicial to their interests", until the information and recommendation from the independent directors and the advice of the independent financial advisers have been considered.

Wheelock Properties most recently turned in a first-quarter profit after tax of S$30.8 million for the three months to March 31, up from S$9.19 million in the same period the year before, on a 40.3 per cent slip in revenue to S$56 million.