Investors would be better served if offer announcements had to reference book values

READERS of a late November announcement offering to privatise property player Chip Eng Seng might have been led to believe the offerors – billionaire couple Gordon and Celine Tang – were paying a reasonable market price for the stock.

Point eight of the offer announcement, which is a “financial evaluation of the offer”, says the consideration of S$0.72 per share represents an 80 per cent premium to the lowest closing price of Chip Eng Seng over the last three years.

The offer price is also 44.3 per cent above the volume-weighted average price (VWAP) of the shares in the last 24 months, 36.9 per cent above the VWAP for the last 12 months, and 28.3 per cent above the VWAP for the last six months.

It is even above the stock’s highest close over the last three years, albeit by a marginal 1.4 per cent.

What was not mentioned in the announcement, however, was the offer’s 27.3 per cent discount to the company’s net asset value (NAV) of S$0.9906 as at Jun 30.

The offer was sweetened to S$0.75 per share a few days later, but the discount to NAV is still a large 24.3 per cent.

To be fair, there are benefits to comparing an offer price to a stock’s prices over certain periods or to its last traded price. These figures reflect what investors are willing to pay for a share of the company at that particular time.

But these are not the only figures that matter, and investors would be better informed if several other comparisons were to be included in the offer announcement. In particular, a comparison of the offer price to the company’s last available NAV would be handy.

Book values matter

This is especially so for companies that own real estate. The NAVs of such companies would typically be representative of what an independent third party believes a sale of owned properties would fetch. These valuations would also be fairly current.

Apart from Chip Eng Seng, several other property companies have been delisted recently at discounts to their NAVs, including SingHaiyi, Top Global and GL.

SingHaiyi was delisted from the Singapore Exchange in January, following a successful offer by the Tangs at a 21.8 per cent discount to NAV.

Top Global was delisted last year at a 46.9 per cent discount to NAV and a 68.4 per cent discount to its revalued NAV.

Earlier this year, Top Global reportedly sold a sliver of the properties in its portfolio – several strata-titled lots of a building formerly known as Thong Teck Building, on Scotts Road – for about S$31.9 million. The lots range in size from 614 square feet (sq ft) to 5,522 sq ft.

That total sale amount is roughly a quarter of the S$125.3 million takeover valuation for Top Global. An independent valuation of Top Global’s properties put the total value of its Thong Teck Building properties at S$170 million. Top Global reportedly still owns 15 strata-titled lots, including a retail lot covering the entire ground floor and a 22,227-sq-ft lot on the second floor.

Presenting relevant information

Offerors – often consortiums comprising one or more of the target companies’ key executives – typically claim they are offering shareholders a chance to realise their investments at a premium.

They have little incentive to display comparisons that do not favour their offers, and some might ask why they should even be required to do so. After all, shareholders can easily look up a company’s book value.

Typically, this comparison is also provided by the independent financial adviser (IFA) appointed to advise the independent directors who are making a recommendation to shareholders.

It could be argued that investors do not really care. After all, many lowball offers have been successful.

In January, Roxy Pacific’s IFA said its buyout offer was “not fair but reasonable”, while Allied Technologies’ IFA in July said SRS Auto Holdings offer was “not fair and not reasonable”. Both offers went through anyway.

Even so, the price-to-NAV comparison can be a useful one – which is why it is often included in the IFA’s report. And investors might appreciate seeing it in an announcement.

If offerors were required to present such comparisons, they might also be more inclined to offer a price that is fairer to minority shareholders.