Surprise outcome of KepLand offer splits views

Singapore

THE surprise outcome of Keppel Corp's takeover bid for its mainboard-listed property arm has brought forth divided views and some unhappy investors.

Some analysts say the end result was the best possible for the conglomerate, noting that it saves a hefty S$155 million on privatising Keppel Land. Others, however, point out that it will now have to deal with KepLand's hold-out minority shareholders. Questions have also arisen over whether KepCorp might have reached its goal if it had extended its offer acceptance deadline just a little longer.

KepCorp owned 95.1 per cent of Keppel Land by the time its offer closed on Tuesday, just 0.4 percentage point shy of the 95.5 per cent threshold it needed to compulsorily acquire the rest of the company. That means that KepLand shareholders who accepted the two-tier offer will only get the base price of S$4.38 per share rather than the higher payout of S$4.60, which they would have been paid if the threshold were reached.

RHB Securities analyst Lee Yue Jer said on Wednesday that this result was "the best possible outcome" for the conglomerate since it can take its property arm private at a lower cost.

That said, KepCorp could not have deliberately caused this outcome since it cannot control shareholders, he said. "Keppel did not choose this. They put it out there that they were willing to pay the higher price, and made it clear that they would not extend the offer further."

The step-up price offer to entice more shareholders to accept is believed to be the first in recent history.

Its original closing date was March 12, by which point KepCorp owned 85.1 per cent of KepLand. It then extended the deadline to March 26. Even though it had already obtained the 90 per cent minimum stake it needed to delist KepLand on March 25, KepCorp extended the deadline by three more trading days to March 31.

Remisier Desmond Leong said that most investors had been convinced that KepCorp would manage to compulsorily acquire KepLand. It would be "natural for people to feel disappointed" that it did not, he said, but added: "I think everybody understood that Keppel made a good try to get the compulsory takeover... Extending the offer twice does show effort already."

Market watchers noted that some shareholders may be wondering why KepCorp chose not to extend its offer for more than three days. One disadvantage from not reaching the compulsory acquisition threshold is that KepCorp has to manage minority shareholders of KepLand who failed to accept the offer in time, they said.

"From a public standpoint, there may be questions as to why there wasn't a further extension once the finish line seemed to be within reach," said corporate lawyer Adrian Chan, adding that most companies seeking a delisting would want to do a compulsory acquisition to avoid ongoing administrative costs related to managing minority shareholders.

Rodyk merger and acquisition partner Ng Eng Leng said that KepCorp's decision to close the offer after 47 days was "probably strategic - my suspicion is that they were trying to force the issue". Not letting the offer drag on could have been intended to encourage hold-outs to accept the offer earlier, he said.

Some shareholders in KepLand who accepted KepCorp's offer have complained that KepCorp closed the offer too early, preventing them from getting a higher payout.

However, UOB Kay Hian analyst Vikrant Pandey said that these were most likely to be speculators who bought KepLand shares after KepCorp announced its takeover offer, rather than investors who bought KepLand shares over the past two years who likely still made money even if they got S$4.38 per share.

KepLand was last traded at S$3.65 before the offer was announced.

Mr Pandey said: "In the last two weeks of the offer it seemed that Keppel would reach the threshold, so there were some speculators who jumped in to make a quick profit." Mr Ng added that any shareholder who bought after the offer was announced would have gone in knowing that it was a gamble. "You take a risk."

A KepCorp spokesman told The Business Times that the conglomerate had clearly explained the offer conditions, and the two extensions to the offer closing date had provided "ample time for shareholders to assess the offer and make a decision". KepCorp's move to extend the offer even after it had secured enough shares to take KepLand private "demonstrates KepCorp's intent to give minority shareholders more opportunity to tender acceptances in order to reach the compulsory acquisition threshold", she said.

Under the takeover code, KepCorp cannot pay KepLand shareholders S$4.60 per share after the close of the offer, she pointed out, adding: "We have to consider the interest of Keppel Corp shareholders."

"Remaining shareholders have a right, under and subject to Section 215(3) of the Companies Act to require Keppel Corporation Limited to acquire their shares at S$4.38 in cash," said KepCorp.

KepLand shares were suspended from trading on Wednesday, after having fallen a cent to S$4.45 on Tuesday. KepCorp closed six cents down at S$8.94.