How Singapore Land Can Make You Sick?

By Gyver Chang @http://www.flickr.com/photos/34817104@N00/1484380648

26 Feb How Singapore Land Can Make You Sick?

In 24 May 2000, United Industrial Corp (UIC) owns close to 60% of Singapore Land. Over the next 14 years, UIC accumulated Singapore Land shares up to 80%. Finally on 24 Feb 14, UIC offered $9.40 to buy out the remaining shares of Singapore Land.

What’s so great about Singapore Land?

Singapore Land is a property investment and development company, and partly owns numerous properties in Singapore.

Commercial:

  • Singapore Land Tower
  • SGX Centre 2
  • Clifford Centre
  • The Gateway
  • Abacus Plaza
  • Marina Square
  • West Mall
  • Novena Square

 

Residential:

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  • The Trizon
  • The Excellency (China)
  • Archipelago
  • Shanghai Chang Feng (China)
  • Mon Jervois
  • Farrer Drive
  • Bright Hill Drive
  • Alexandra View

So what if Singapore Land part owns these properties? What if these properties are sold at a discount to market value? How does that sound to you?

The guys behind the deal are Wee Cho Yaw (4th richest man in Singapore) and John Gokongwei (3rd richest man in Philippines). They own UIC. I am sure these guys know how to do business and know what is a good deal.

In fact, Singapore Land has been trading below its Net Asset Value for a long time. The Net Asset Value per share is $13.96 (based on 31 Dec 12 annual report). Even if I exclude some of the assets, the Conservative Net Asset Value per share is $10.50. Offering $9.40 is way below the real value of the properties. What a great move by Mr Wee Cho Yaw and Mr Gokongwei.

Singapore Land was one of the very discounted stocks based on our Conservative Net Asset Value Screener. It was timely that our first Value Investing Mastery Course completed just before the offer and one of the students was rewarded without waiting too long. This doesn’t happen all the time when it comes to investing.

Kevin Khoo Sp Land Trade v2

Should you Sell Singapore Land?

The tricky part is that UIC already owns 80% of Singapore Land and they just need to acquire another 10% to delist the company. If you do not wish to sell because it was a low-baller price, you risk becoming a minority shareholder of a private company. But if UIC did not manage to accumulate another 10%, they will likely offer a higher price for the remaining shares. What should you do? Let’s look at the situation.

836,000 + 851,000 shares have changed hands in the following two days after the announcement. It only represented 0.4% of the total shares. And shares were trading above the offer price of $9.40, which means the market expects the bid to be higher, or it could be UIC buying from the open market (there weren’t announcements of trades from significant shareholders/directors).

Looking at the shareholder statistics, Silchester International (a fund) owns 8.16% of Singapore Land. This makes them the crucial deal maker or deal breaker. UIC will have a high chance of acquiring Singapore Land if Silchester agrees to sell off the stake at $9.40. If I am Mr Wee, I would discuss with Silchester and agree on a price. However, I think this is unlikely because Mr Wee could have negotiated for a private deal for the shares and not resort to announcing the offer to the public. It is more likely UIC is trying to entice retail investors to sell their shares so that they can meet 90% ownership and eventually force Silchester out of the game with 8% of Singapore Land.

If retail investors can unite with Silchester to keep the shares, there is a possibility for higher offer from UIC. And I think $13.96 is not an unreasonable price to ask for.

$9.40 is sick.



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4 Comments
  • Gary
    Posted at 23:39h, 26 February Reply

    Just some comments on your article.

    UIC and Silchester are not the one accumulating because takeover rules, being substantial shareholders, UIC or Silchester are required to report any purchases of any size. Besides UIC cannot buy above 9.40 because they require them to revise the offer price upwards.

    UIC can discuss with Silchester before or after offer annc. Not necessarily need to discuss before offer.

    To Delist Singapore Land, another EGM and an Exit Offer is needed. With Silchester holding 8%, the chance of EGM approval by minority is low because only need 10% to reject.

    To Compulsory acquire the minority, UIC need to have 98% of outstanding shares not 90% because UIC owned 80% of shares and did not use a new takeover vehicle for this Offer. Without Silchester selling out, UIC dont have the right to compulsory acquire.

    Like what u said, Silchester is deal maker or breaker.

    FYI only.

    • Alvin Chow
      Posted at 07:16h, 27 February Reply

      Thanks Gary for pointing out the intricacies

      I checked out the rulebook,

      (2) the resolution to delist the issuer has been approved by a majority of at least 75% of the total number of issued shares excluding treasury shares held by the shareholders present and voting, on a poll, either in person or by proxy at the meeting (the issuer’s directors and controlling shareholder need not abstain from voting on the resolution); and

      (3) the resolution has not been voted against by 10% or more of the total number of issued shares excluding treasury shares held by the shareholders present and voting, on a poll, either in person or by proxy at the meeting.

      The key is not acquiring 90% of the shares, but not more than 10% voted against the delisting by shareholders.

      Which rule to apply when you mentioned UIC needs to have 98% to takeover minority?

  • Gary
    Posted at 11:15h, 27 February Reply

    Hi

    There is 2 part to any Offer. Delisting & Compulsory Acquisition.

    If UIC get 90% of shares, it can successfully delist the shares, BUT NOT compulsory acquire the minority shareholders.

    Regarding the 98% acceptance to compulsory acquire, the keyword in the rule is

    “(OTHER THAN those already held by the Offeror, its related corporations or their respective nominees as at the date of the Offer and excluding any Shares held by the Company as treasury shares)”

    To Compulsory acquire the minority, UIC need to have 98% of outstanding shares not 90% because UIC already owned 80% of shares and did not use a new takeover vehicle for this Offer.

    From the Offer Document,

    Compulsory Acquisition
    Pursuant to Section 215(1) of the Companies Act, in the event that the Offeror acquires not
    less than 90% of the total number of issued Share s (other than those already held by the
    Offeror, its related corporations or their respective nominees as at the date of the Offer and
    excluding any Shares held by the Company as treasury shares), the Offeror would be entitled
    to exercise the right to compulsorily acquire all the Shares from Shareholders who have not
    accepted the Offer at a price equal to the Offer Price.
    In addition, pursuant to Section 215(3) of the Companies Act, if the Offeror acquires such
    number of Shares which, together with the Shares held by it, its related corporations and their
    respective nominees, comprise 90% or more of the total number of issued Shares, the
    Shareholders who have not accepted the Offer have a right to require the Offeror to acquire
    their Shares at the Offer Price. Such Shareholders who wish to exercise such a right are
    advised to seek their own independent legal advice.

    • Alvin Chow
      Posted at 17:41h, 27 February Reply

      Thanks for the clarification.

      My understanding is UIC wants to try to get additional 10% of Sp Land from retail investors, so that they can delist Sp Land.

      When that happens, Silchester has to take the offer of $9.40 (either UIC exercising the right to acquire or Silchester exercise the right to demand Offeror to buy their shares, at $9.40, whichever the case), or be the shareholders of a private company.

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