8 question sets shareholders should ask SingPost’s board over planned sale of Australian business
As it pivots to logistics in an attempt to mitigate the secular decline in its Singapore postal business, the business that it is now proposing to sell has become the the group’s top profit contributor
ON THE face of it, shareholders of Singapore Post (SingPost) should be happy about the company’s proposed sale of its Australian logistics business.
SingPost earlier this month announced it is selling its subsidiary offering fourth-party and third-party logistics solutions in Australia – which is ranked among the top five of such players Down Under – at an enterprise value of A$1 billion (S$856.4 million).
For shareholders, this would translate to SingPost reaping some S$312.1 million in gains on disposal.
On a pro forma basis, assuming the deal was completed on Mar 31, 2024, SingPost’s net tangible asset per share would increase to S$0.689 from S$0.349.
Its earnings per share would have been S$0.162, up from S$0.035, if the transaction had been completed on Apr 1, 2023.
In addition, SingPost is likely to return to net cash position after the transaction.
Sounds good so far? But maybe not.
As SingPost pivots to logistics in an attempt to mitigate the secular decline in its Singapore postal business, the Australian business that it is now proposing to sell has become the top profit contributor for the group.
The Australian business generated a profit of S$20.3 million (including discontinued operations that have not been disposed of, and before income tax and non-controlling interests) for the first half of FY2025 to September, or 66.1 per cent of the group’s S$30.7 million for the period.
However, SingPost’s acquisitions to bulk up the Australian business have saddled the group with considerable debt – amounting to some A$362.1 million as at end-September.
The total Australian dollar-denominated debt of the group, including borrowings undertaken by the Australian business in question, amounted to A$614.8 million as at end-September.
In the first half of the financial year to September, the group forked out S$24.6 million in finance expenses, eroding its net profit to S$22.6 million.
SingPost is keenly aware of the urgency to pare down its debt and intends to use a portion of the proceeds from the Australian business sale to repay borrowings.
The unsolicited bid from the private equity prospect came about from a strategic review. SingPost had tasked its financial adviser to explore near-term partnerships that would boost its Australia business, provide equity to deleverage acquisition debt and establish an independent valuation benchmark for the business.
SingPost said the strategic review had explored both partial and full divestment options as well as strategies for boosting its business through organic and inorganic means.
It is clear that the proposed transaction will be a significant one for SingPost, and is subject to shareholders’ approval.
Before SingPost shareholders cast their vote on the proposed deal, here are eight sets of questions they might want to ask the board.
1. Would the board consider that the objectives of the strategic review for the Australian business have been satisfied? Were there any changes in the objectives in the process of the review? If so, what were the circumstances or reasons that prompted the changes?
2. What are the challenges and opportunities for the Australian business if it is not divested? Does SingPost have the capability and resources to tackle them?
3. Should the Australian business not be divested, would the funds from the sale proceeds of non-core assets – including shop space of shuttered post offices and the S$1.1 billion SingPost Centre – be adequate to substantially reduce its liabilities?
4. What were the other options that were explored during the review? Was an initial public offering among them? And what were the reasons that a flotation – that would have allowed SingPost to continue enjoying contributions from Australia – was deemed not viable or not pursued?
5. Would the proposed sale be at odds with SingPost’s strategies and pivot to be a leading logistics player in diversified markets?
6. What could be the viable pursuits that would replace the sizeable contribution from Australia post-divestment, and what would be the horizon required to achieve that?
7. Is the board confident that SingPost would not need to take on considerable borrowings to fund future acquisitions? How will it avoid being laden with debt and find a way to deleverage, like what it is doing with the Australian investment?
8. Post-divestment of the Australian business and non-core assets, could a delisting of SingPost be on the table? In this case, would all the proceeds be paid out to shareholders?
