Hot stocks: SPH, SPH Reit jump on news of rival offer; SPH ends above proposed S$2.10 price

SHARES of Singapore Press Holdings (SPH) T39 ended Monday (Nov 1) at S$2.12, up 6.5 per cent or S$0.13 for the day and above the offer price of S$2.10 that has been proposed by consortium Cuscaden Peak. Units of SPH Real Estate Investment Trust (Reit) SK6U , meanwhile, ended at S$1.04, up 6.7 per cent or S$0.065.

SPH was the third most heavily traded counter on the Singapore Exchange by value.

Both counters had been halted on Friday (Oct 29), after a consortium of companies comprising Hotel Properties (HPL) and its managing director Ong Beng Seng, and 2 Temasek-linked entities, CLA Real Estate and Mapletree Investments, had launched a surprise rival proposal to privatise SPH at S$2.10 per share in cash.

Shortly after the resumption of trading on Monday, shares of SPH reached a high of S$2.14 at 9 am, up 7.5 per cent or S$0.15, while units of SPH Reit reached a high of S$1.06 at 9.07am, up 8.7 per cent or S$0.085.

No married deals were recorded for both counters, according to ShareInvestor data.

Cuscaden's proposal, which is via a scheme of arrangement, still needs to be accepted by the board of SPH, which publishes The Business Times.

SPH already has an offer on the table from Keppel, at a slightly lower price of S$2.099 per share. This offer comprises cash of S$0.668 per share, 0.596 Keppel Reit unit (valued at S$0.715) and 0.782 SPH Reit unit (valued at S$0.716) per share.

SPH shareholders were expected to vote on the Keppel deal this year, and SPH's share price had remained below the S$2.099 level this year.

Keppel's deal with SPH includes the option for Keppel to make a cash offer if a competing offer emerges, and the market appears to be hoping Keppel will exercise this option.

In a research note on Friday, CGS-CIMB noted the completion of SPH's media restructuring will likely attract more bidders for SPH's property and investment businesses ahead.

The analyst team said Keppel will likely make a counter offer given existing synergy, but it does not expect Keppel will match Cuscaden's 100 per cent cash offer given the former's net gearing position of 0.76 as at September 2021.

If Keppel were to walk away from the deal, CGS-CIMB said potential beneficiaries might be unitholders of Keppel Reit. The latter has been weighed down by the expectation that the distribution of Keppel Reit units as part of the consideration in the SPH deal would create selling pressure on Keppel Reit.

At the same time, an abortion of the deal would mean there will be no increase in Keppel Reit's free float to boost its trading liquidity. Keppel's share price, meanwhile, could be negatively affected as its asset recycling strategy to reinvest into new growth areas could be stalled.

CGS-CIMB has encouraged SPH shareholders to hold on to the stock as it believes SPH's board may evaluate the potential listing of its student accommodation unit, potential growth of its aged-care business, and value of its non-core assets.

Meanwhile, Macquarie Research expects Keppel will eventually be outbid if a bidding war emerges.

The analyst team said the market will likely opt for a full cash offer over a cash-plus-shares offer. While Keppel has the necessary cash, a full cash offer for SPH may impact its other capex plans. Raising debt for the full amount would push Keppel's net gearing to over 1 time in the near term, which may make the market "wince at the idea".

Macquarie expects CapitaLand Investment (CLI) 9CI will be a beneficiary if the offer by Cuscaden goes through, as the former will see improved assets under management growth boosted by SPH's assets, and synergies between CLI's retail property management business and SPH's retail assets. CLA Real Estate, one of the companies behind the consortium, is also a shareholder of CLI.

As for the chain offer for SPH Reit, Macquarie said it is likely just a regulatory requirement with no intention to privatise the Reit.

Instead, it may make better commercial sense to consolidate SPH Reit with entities within Cuscaden that have similar mandates - such as CapitaLand Integrated Commercial Trust and Mapletree Commercial Trust - the analyst team said.

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