SPH: A long-drawn takeover fight no one wants

THE Singapore Press Holdings (SPH) takeover saga has taken a surprising turn.

What was at first billed as a friendly offer of SPH, sans its media business, has turned into an acrimonious affair, with SPH's board on Wednesday (Feb 9) deciding to drop Keppel Pegasus's scheme from being put before shareholders for approval.

Instead, SPH will proceed only with an offer from Cuscaden Peak - an Ong Beng Seng-led consortium. In a statement on Wednesday, SPH said it was giving notice to Keppel Pegasus to terminate the Keppel Implementation Agreement with immediate effect.

SPH's rationale is straightforward: Cuscaden's offer is superior to Keppel's in all key aspects, including pricing, obtaining all regulatory approvals and time to completion.

The clincher for the termination was that not all the stipulated conditions in the Keppel Implementation Agreement have been satisfied nor has the Keppel Scheme become effective by the cut-off date on Feb 2, 2022.

The rationale is in line with the preliminary assessment of SPH's independent directors, who have recommended that shareholders vote in favour of the Cuscaden scheme, and against the Keppel scheme. This came after SPH cleared an important hurdle, which involved the Securities Industry Council throwing out a clause in Keppel's offer that restricts SPH from holding a scheme meeting for a rival offer within 8 weeks from the Keppel scheme meeting. This meant both schemes could be presented to SPH shareholders for approval at the same time.

However, this throws up a potential problem. What if a majority of shareholders vote yes to both schemes? Which of the two will SPH submit to the court for approval? Logic dictates that the scheme with a higher majority of votes should get the nod but logic is not necessarily law.

In its statement on Wednesday, SPH spelled out the dilemma: "Due to there being two parallel competing schemes, the company, together with Keppel Pegasus and Cuscaden, has been engaged in substantial discussions amongst themselves and the regulators.

"However, there has been no consensus in relation to which scheme would be submitted to court for approval in the event that both schemes achieve the voting majority as required by the Companies Act."

The statement suggests that the parties had been engaged in futile discussions. Either Keppel, Cuscaden or both do not agree to a popularity contest. Ideally, shareholders should be asked to do a two-step vote: first, whether they agree to a scheme of offer for the company.

If the majority's response is no, SPH continues as it is. But if a majority vote yes, a second step would be to ask them to pick one of two offers on the table. The offer with the higher percentage votes wins.

However, this begs two questions: Does the Companies Act provide for such referendum-style voting; If yes, will all parties agree to it?

Keppel has responded to the notice of termination by filing a notice of arbitration on the same day with the Singapore International Arbitration Centre (SIAC) to start arbitration proceedings against SPH and to seek various reliefs against SPH, including specific performance of SPH's obligations. In layman terms, specific performance here means compelling SPH to put Keppel's offer scheme before its shareholders.

This move suggests that Keppel believes its offer can succeed despite a lower implied offer price of S$2.318 a share compared to Cuscaden's implied offer of S$2.361, based on the stock market close on Wednesday. It is not inconceivable that Keppel's offer could succeed, given that the price difference between the two offers is less than 2 per cent.

When two offers are comparable in price, non-monetary factors may come into play in the minds of shareholders. Speaking as an SPH shareholder, I have not decided what I will do.

All things equal, SPH should be worth more to Keppel than to Cuscaden. Historically, SPH and Keppel have had close collaborations. For instance, they teamed up to take telco M1 private in 2019. Both companies have invested in student accommodation and commercial real estate investment businesses. If combined, they may yield better synergy. The two companies even had the same chairman for a while.

On the other hand, arguably only Paragon from among SPH's assets fits the Ong Beng Seng mould. Famed for his investment in high fashion and chain of hotels and properties, notably in Orchard Road, Ong is also credited as being one of those responsible for bringing the Formula 1 night race to Singapore.

Given the fine margin between the two offers and the greater attraction of folding SPH into its arms, it is perplexing that Keppel was so quick to declare its second offer as final in the face of a competing bid.

If this was a game of chess, this move would be annotated with a question mark - which denotes a bad move or a blunder. In business and chess, the initiative lies with the player making the first move. In this takeover saga, Keppel had the first move. It was able to announce a deal with SPH on Aug 2, 2021 - nearly 3 months before Cuscaden made its move on Oct 29. Less than two weeks later on Nov 9, Keppel improved its original offer by 12 per cent, which it said was also its final offer.

By drawing the line so early in the game, Keppel squandered its advantage and surrendered the initiative to Cuscaden. Since it could no longer better Cuscaden's offer, it could only mount a defence. This took the form of regurgitating over and over how its offer was a compelling one.

The deterrents it thought it had - a S$34 million break fee payable by SPH to Keppel in the event of an unconsummated deal and an 8-week headstart for its offer to be put before SPH shareholders over any rival offer - were not insurmountable. The coup de grace was delivered on Wednesday when SPH said it would not put up Keppel's offer to a vote.

It's not quite checkmate yet but Keppel is heading to the endgame - mediation - under unfavourable circumstances.

Its best case scenario - the SIAC agreeing with its position - may simply lead to the impasse noted by SPH, which it is keen to avoid.

If SIAC agrees with SPH - the alternative scenario - Keppel should concede rather than mount any further challenges.

Keppel may justifiably feel aggrieved by the turn of events after all the hard work it had put in, particularly as the prospect of its takeover of SPH might have swayed some shareholders to approve the SPH media demerger on Sep 10, 2021.

World champion Magnus Carlsen beat challenger Ian Nepomniachtchiin in December last year in the longest ever world championship game lasting 136 moves and nearly 8 hours. Chess lovers lapped it all up.

But SPH shareholders and staff won't relish a long drawn out takeover. Staff morale may also be affected as the uncertainty could hinder SPH's ability to fill job vacancies.

In corporate manoeuvres, the little people are not pawns to be sacrificed.

READ MORE:

• Keppel to push on with arbitration proceedings against SPH despite termination notice
• Keppel vs Cuscaden: A timeline of key events for the battle over SPH's assets