The value of Keppel Corp’s offer for the acquisition of Singapore Press Holdings is likely to continue to fluctuate with market volatility, rising risk-free rates in the form of 10-year government bond yields from which REITs’ yield spreads are priced, and the impact of new Covid variants.
At any rate, Keppel’s EGM for its shareholders to vote on its cash+REIT offer for SPH is on Dec 9 and the likelihood for all resolutions passing are very high as Keppel’s payment per SPH share is largely in REITs, with 36.9% in cash, based on the valuations of Keppel’s improved offer on Nov 9.
On Nov 16, the day after Cuscaden Peak - a joint venture comprising Hotel Properties, Mapletree and CLA Real Estate Holdings - raised its cash offer for SPH to $2.36 per share, Keppel’s offer which had been priced at $2.351 on Nov 10, rose to $2.37. This was one cent higher than Cuscaden’s all cash offer of $2.36 for each SPH share. The reason for Keppel’s seemingly higher valuation per SPH share was - perversely - because investors believed that SPH’s shareholders would vote based on indications from its independent directors, which viewed Cuscaden’s cash offer as superior.
SPH’s shareholders - and there are 60,000 mainly retail shareholders - opting for the Cuscaden’s all share offer would have taken the pressure off Keppel REIT.
Keppel’s improved offer for SPH, announced late on Nov 9, was for $2.351, comprising $0.868, 0.596 Keppel REIT units and 0.782 SPH REIT units for each SPH share. Such a transaction would have pressured Keppel REIT’s unit price, as Keppel REIT would have ended up with 60,000 new unitholders of mainly retail investors, if SPH’s shareholders voted for the deal in a scheme meeting.
As it is, most SPH’s shareholders prefer an all-cash consideration. However, because of certain conditions in the agreement between Keppel and SPH’s board, the Keppel offer has to be voted on first, in a scheme meeting, after which, the Cuscaden scheme can be voted on. For the vote on Cuscaden't scheme to proceed, at least 26% by value of the votes cast at SPH's Keppel scheme meeting need vote against the resolutions.
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As time has worn on since Cuscaden’s improved offer, the gap between the value of Keppel’s scheme and Cuscaden’s scheme has grown (see chart). On Nov 16, the chart shows the one cent gap between Cuscaden’s all cash offer and Keppel’s offer valued at $2.37. As at Dec 3, this had reversed to 5 cents in favour of Cuscaden, with Keppel’s offer valued at $2.31. In addition, as at Dec 3, the gap between Cuscaden's cash+units scheme and Keppel's scheme has widened from 3 cents on Nov 16 to more than 6 cents on Dec 3.
On Dec 2, Cuscaden announced that it has received approval from the Foreign Investment Review Board in Australia (FIRB). This follows its receipt of regulatory approvals from the Monetary Authority of Singapore (MAS) and Info-Communications Media Development Authority (IMDA) in Singapore, announced on Sept 21.
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To provide SPH shareholders with greater transaction certainty, Cuscaden has also agreed to enter into a supplemental letter with SPH, and unconditionally and irrevocably waive its right to walk away from the transaction upon the occurrence of a Material Adverse Effect (MAE Condition) under the Implementation Agreement between Cuscaden and SPH.
At a webinar for Phillip Securities’ clients on Dec 3, SPH group CEO Ng Yat Chung said: “the date for the Keppel scheme has not been fixed, It's possible that the Keppel scheme rather than taking place now in early December may take place … now in early January.”
On Nov 9, Keppel had indicated that its scheme could have been put to SPH’s shareholders on Dec 8. In answers to questions from SIAS, Keppel said, “SPH’s shareholders will be able to participate in the potential growth of both Keppel REIT and SPH REIT as well as receive distributions from Keppel REIT and SPH REIT following the completion of the transaction, in addition to being able to receive Keppel REIT units at a 10% discount to its NAV as of September 30, 2021.
“To give an illustration of the accrued distributions, assuming the transaction had been completed on Jan 15, 2021, the combined accrued distributions from Keppel REIT (for the period from July 1, 2020 to December 31, 2020) and SPH REIT (for the period from September 1, 2020 to November 30, 2020) would have been approximately $0.03 per SPH share. This is calculated using the distribution of $0.0293 per Keppel REIT unit which was declared on January 25, 2021 and had its books enclosure date on February 2, 2021, and the distribution of S0.0120 per SPH REIT unit which was declared on January 13, 2021 and had its books enclosure date on January 21, 2021.”
When REITs pay out their distributions, their NAV per unit are adjusted downwards by the amount of distributions per unit. Sometimes, REITs’ units decline by their DPU post payouts.
If as CEO Ng has indicated, SPH’s shareholders get to vote on Keppel’s scheme in January, then they are unlikely to be entitled to the REITs’ distributions. Now with transaction certainty for both the Cuscaden scheme, and a high probability of certainty for the Keppel scheme post-Dec 9, the schemes should be put to SPH’s shareholders so they can vote for cash or REITs.
