Good news indeed! On the early morning of 10th November 2021, Keppel Corp has finally announced its counter offer of S$2.351 per share to shareholders of Singapore Press Holdings ("SPH"). This represented an +11.95% improvement in its offer price relative to the offer of S$2.10 by the Cuscaden consortium. While I see many retail investors jumping with joy and popping the champagne happily proclaiming even more upsides from another potential counter-counter offer from Cuscaden, this S$2.351 per share deal is actually not that great an offer by Keppel Corp. The essence of the deal remains similar to the initial crafting, that is, SPH shareholders are still being paid with a combination hybrid of cash and stocks. 3 things which shareholders need to watch out for:
1. Disappointing that Keppel Corp did not offer an all-cash deal which means deal subject to market risk
The counter offer does seems great at first. However, I still can't help but feel disappointed that the deal still involves the distribution of units in Keppel REIT and SPH REIT. When the initial offer was announced, SPH REIT and Keppel REIT dropped in price but Keppel Corp did not make any comments about the decline.
The counter offer does seems great at first. However, I still can't help but feel disappointed that the deal still involves the distribution of units in Keppel REIT and SPH REIT. When the initial offer was announced, SPH REIT and Keppel REIT dropped in price but Keppel Corp did not make any comments about the decline.
However, right now, the S$2.351 per share is worked out by Keppel Corp taking into account the latest trading price of SPH REIT of S$1.02 per unit on 9th November 2021 and they make a big hoo-ha out of it. Once market opens, the price of SPH REIT and Keppel REIT will fluctuate again and what is there to stop their prices from dropping?
Bear in mind that the consideration will only be given to shareholders of SPH only in mid-January 2022. Hence there is plenty of time for downside surprises.
2. Fallacy to think that the bidding war is still on- it has ended on the contrary
Keppel Corp has already declared that the revised offer is final and will not be further increased. Given that Keppel has show-hand and released all their buffer in the counter-offer, the counter-counter offered price (assuming there is even one) by Cuscaden consortium will only be slightly above Keppel Corp's of S$2.351-maybe even S$2.352 per share. So don't be too surprised to just a 0.1 more cent counter-counter offer from Cuscaden consortium even if they decided to make one.
Basically, unless a 3rd bidder joins in, the so called bidding war has effectively ended already.
Note that the worst scenario here is that Cuscaden gave up on making a revised offer and shareholders will be left with the current best offer from Keppel Corp. Share price of SPH on 16 November 2021 (the last allowed day by Keppel Corp legal team for SPH to enter into another competing offer) may drop in such instance.
3. The Keppel revised deal may not go through SPH EGM and Keppel's own EGM.
One will need >50% of headcount of SPH shareholders voting by proxy at the EGM and also >75% of the total number of votes cast by SPH Shareholders voting by proxy in order to go through. Same for Keppel Corp's side. So this is the uncertain portion. If any of these EGM failed, the current pricing of SPH might drop immediately back to below S$2 per share. Back to square one.
Parting thoughts- What now for SPH shareholders?
I reckon that once the trading halt is lifted, the price of SPH will shoot up to S$2.381 (including 3 cents for the dividends that is not ex-dividend yet) per share or even more as many investors may speculate that Cuscaden will make an even better offer.
However, share price most likely will drop after the last allowed date of 16th November 2021 if no competing counter offer from Cuscaden is received by SPH. Keppel Corp's offer is plagued by the distribution in specie of units in SPH REIT and Keppel Office REIT which are subject to potential market downside risk.
P.S: Fellow SPH shareholders, please share your views and thoughts on the new counter-offer. Will you sell off immediately after trading halt is lifted to reduce further market risk? Or will you wait for another potential counter-offer from Cuscaden on 16th November 2021?
Am K Reit shareholder for sometime. Not happy with Keppel doing this deal. Recent actions points to mgmt putting parent company profit ahead of their reits and shareholders. KDC investin M1 is another example.
ReplyDeleteBought K Reit because of it's Grade A trophy assets. But now they want to make rojak with SPH Reits malls which are not very good assets except for Paragon. Feel shortchange.Share price drop from $1.20+ to almost $1 at one point already reflect shareholders losing confident in mgmt. They just ignored it. Lol.
Hi Henry, good to hear from you. Thanks for sharing your thoughts. Yup, I also do not like the idea of Keppel REIT ("Grade A" office) become mingled with sub-urban malls...rojak indeed....give rise to a very weird branding.
DeleteThe Keppel senior management trying to follow CapitaLand Integrated Commercial Trust probably. I do hope Keppel can just keep both REITs separate. For me personally, I do not want further exposure to office REITs as I held a number of them already. :)
K reit has been notorious in being a vehicle for the parent to recycle capital. Remember, managers earn 1% just by buying and selling properties.
DeleteJust be mindfully when investing in reits, not all managers are align to unitholders' interest. The other reits I have blacklisted are reits managed by ARA.
Hi Dan, good to have you sharing your thoughts. Keppel management a bit too "practical"....personally, I think that K-REIT unit-holders get the shorter end of the stick when comes to M&A.
DeleteARA ones like Suntec you mean? I am left with a tiny stake in it. I think the other ones to lookout for is the REITs related to Lippo Karawaci. For example, First REIT, whereby the original rental agreement with income support was renegaded and new one put in place.