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ISETAN
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finjungle
Veteran |
21-May-2024 10:48
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Hello Joelton, many many thanks for the well written article. it is so crystal clear about the SOA.
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MrBear12
Supreme |
21-May-2024 10:32
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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Three cheers to Mr How. How many loyal shareholders like him? Hold for over 40 years.
But again, how many stocks can we hold for 40 years? Rare indeed is Mr how. |
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Joelton
Supreme |
21-May-2024 10:26
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Why Isetan&rsquo s minority shareholders believe the privatisation offer undervalues the company
On April 1, Isetan (Singapore) announced that it had received an offer from Isetan Mitsukoshi Holdings to acquire the shares that the latter doesn&rsquo t own, by way of a scheme of arrangement (SOA). The price being offered is $7.20. The undisturbed price of Isetan on March 26 was $2.84 versus its book net asset value (NAV) of $2.58. Oftentimes, Isetan would trade below its book value.
Why then, did Isetan Mitsukoshi, which holds 52.73% of Isetan (Singapore) offer $7.20 per share? And yet, according to a group of long-term shareholders, the SOA offer still values Isetan below its intrinsic value.
Here&rsquo s why.
Isetan adopts historical cost accounting (like City Developments). Its properties are valued at cost less depreciation and impairment. As a result, the valuation of both its investment properties, and its property, plant and equipment (PPE) are likely to be less than what they could receive on the open market.
Based on the revaluation surplus that Isetan has in its annual report for its investment properties (25.77% of Wisma Atria and 50% of Kallang Pudding Lane) of $308.9 million, and the book value of its investment properties of $25.8 million, the surplus is $283.1 million. This in itself works out as a $6.86 per share of surplus, which The Edge Singapore previously indicated.
A $6.86 surplus implies a revalued NAV (RNAV) of $9.44 per share.
However, the revaluation surplus does not take into account Isetan&rsquo s other properties under its property, plant and equipment (PPE). Based on the annual report, the property part of PPE is carried at $14.673 million as at Dec 31, 2023 in the balance sheet. The minorities argue that this value should be included.
The PPE properties comprise Isetan Office Building on Havelock Road, a 50% stake in Kallang Pudding Warehouse and a unit at Valley Park. The Isetan Office Building and Kallang Pudding Warehouse are freehold, and the Valley Park condominium sits on 999-year land (so, pretty much freehold).
The fair valuation of these properties as stated in the annual report are $47.85 million. Based on the fair value of both its investment properties, and those that Isetan (Singapore) uses for its business operations, the RNAV is around $10.21.
Mr How, an 88-year old shareholder of Isetan (Singapore) who has held the shares since its IPO in 1981, says: &ldquo Most people are not unreasonable, they are looking for a fairer offer. At the last minute [the Japanese] cannot kick us out at $7.20. If they don&rsquo t agree to a better offer, we will wait for them to liquidate.&rdquo
Chatting with Mr How was like getting a glimpse into the past. In the recent past, Mr How campaigned for Isetan (Singapore) to disburse its $60 million of tax credits by end-2007. Companies were given five years' notice from Jan 1, 2003 &mdash when the one-tier corporate tax system came into effect &mdash to Dec 31, 2007 to allow them to utilise the outstanding balance of their section 44A tax credits.
&ldquo Every year, the dividend was very low and all the profit was not fully distributed out. Then came the 2007 deadline. Eventually they gave us $1.20 in tax credits. The company declined to distribute the full tax credit. One of the reasons was that Isetan (Singapore) would have to pay more tax in Japan,&rdquo Mr How recalls.
Disbursing more dividends to minority shareholders in Singapore seemingly doesn&rsquo t benefit Isetan (Japan). This point was reiterated in a letter by David Gerald, CEO of SIAS back in 2007, who said that the majority shareholder having to pay additional tax in Japan on the dividends is not a good enough or acceptable reason for Isetan (Singapore) not distributing its Section 44 tax credits to minority shareholders.
Over the years, Mr How has had differences with Isetan&rsquo s board of directors. Back in 1988, Isetan had a rights issue which was at $5.10 per share. &ldquo Isetan (Japan) also subscribed to this, but two to three months later, after the rights issue (in 1989), Isetan (Singapore) had a private placement. Isetan (Japan) sold their shares from the rights issue along with the private placement,&rdquo he says.
However, as Mr How recalls, Isetan (Japan) &ldquo mopped&rdquo shares at as low as $1.03 during the Asian Financial Crisis and the closure of CLOB.
Following the privatisation offer, the minorities have written to the Isetan (Singapore) board and Isetan Mitsukoshi asking for a better price. Their rationale is if the two RNAVs, of $9.44 with just the fair value of the investment properties, or $10.21 which is the RNAV of the entire company, value Isetan at a significantly higher value than $7.20 surely Isetan Mitsukoshi should be able to better its $7.20 per share offer.
A caveat to this is the remaining land tenure of Isetan&rsquo s 25.77% of Wisma Atria stake, of 37 years the freehold lease belongs to Ngee Ann Kongsi. Market observers have also pointed out that there may be only one buyer of Isetan&rsquo s stake in Wisma Atria, Starhill Global REIT P40U 1.05% , who owns the remaining 74.23% of Wisma Atria including the office tower. Additionally, if Isetan (Singapore) continues to operate in Singapore, it would need its office and its warehouse. Nonetheless, Isetan&rsquo s annual report indirectly points to a revaluation surplus of $$6.86, and an RNAV of $9.44.
Interestingly, following Isetan Mitsukoshi Holdings&rsquo announcement of the intention to privatise Isetan (Singapore), on May 10, Oversea-Chinese Banking Corp announced an offer to buy out the minority shareholders of Great Eastern Holdings G07 0.04% , and to delist the insurer. Most recently, on May 19, RE& S Holdings 1G1 30.19% received an offer to privatise it via a SOA.
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Alignment
Elite |
23-Apr-2024 14:42
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Concert parties to the offeror (i.e. Isetan Mitsukoshi) are not allowed to vote. The question then is whether Isetan Foundation is a concert party to Isetan Mitsukoshi. One can ask Isetan Singapore directly of course perhaps I should. But whatever their answer is, it may not be necessarily the correct one, legally speaking. So I wondered if anyone had a view on this. |
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MrBear12
Supreme |
22-Apr-2024 22:10
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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Sorry Alignment, I was merely being a little broadly playful here to say they award scholarships. Yes I saw their latest annual report and the isetan foundation is a substantial shareholder. Their shares are also being acquired. So they should be able to vote for or against. Apologies for being so indirect. But we can clarify with management, is there any restriction? Unless they abstain, possible, and they will say so, if so.
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Alignment
Elite |
22-Apr-2024 21:16
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x 0
x 0 Alert Admin |
You miss the point here. Isetan Foundation is the second largest shareholder in Isetan Singapore after Isetan Mitsukoshi. Isetan Mitsukoshi has 52% but cannot vote in the privatisation scheme due to their conflict, so my question is whether Isetan Foundation can vote its 8% stake or are they also conflicted. | ||||
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MrBear12
Supreme |
22-Apr-2024 18:57
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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No they do not vote. Instead they give out scholarships. For example.
The Isetan Foundation Endowed Scholarship is established by the Isetan Foundation to assist deserving full-time undergraduate students currently enrolled in the Bachelor of Business Management at the Singapore Management University (SMU)1. Here are the details:
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Alignment
Elite |
22-Apr-2024 18:29
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A further question on this one - can the Isetan Foundation vote? Are they considered independent? | ||||
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Alignment
Elite |
11-Apr-2024 15:51
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x 0 Alert Admin |
Any chance of an increase in offer price here to get the deal over the line? Isetan Mitsubishi itself cannot vote, so it needs enough independent investors to support, both in value terms and also actual individual investors. |
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Alignment
Elite |
11-Apr-2024 15:49
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Nikkei is soaring because yen is falling. Going up in Yen terms, not so much in USD.
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Joelton
Supreme |
10-Apr-2024 16:02
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Isetan' s rich exit offer is a shining example of how to treat shareholders fairly in a privatisation
AMID a recent spate of lowball privatisation offers in the Singapore market, Japan-listed Isetan Mitsukoshi' s privatisation offer last week for its subsidiary &ndash department store Isetan Singapore : I15 -0.14% &ndash comes as a breath of fresh air.
Its offer price of S$7.20 for each of Isetan Singapore' s shares that it does not already own far surpasses all major benchmark values considered in an exit offer, such as a company' s book value and last-traded price.
The offer price is 178.9 per cent above Isetan' s net asset value (NAV) per share of S$2.58.
It is also 173.4 per cent higher than its one-month volume-weighted average price (VWAP) of S$2.63 and 171.1 per cent higher than its three-month VWAP of S$2.66.
The offer price is also at a 37.4 per cent premium over Isetan Singapore' s highest closing market price over the last five years of S$5.24.
The attractive offer from Isetan Mitsukoshi comes even as the department store posted a net loss of S$1.9 million for the six months ended Dec 31, 2023, from a net profit of S$871,000 in the previous corresponding period.
The offer is pending majority approval from shareholders but it is unlikely to hit any snags.
Beating lowball offers
In the same week Isetan Singapore announced its privatisation plans, skincare and wellness product manufacturer Best World : CGN +0.82% offered shareholders S$2.50 in cash per share by way of a selective capital reduction to take the company private.
The offer is 82.5 per cent above Best World' s NAV per share of S$1.37.
It is also a premium of approximately 43.7 per cent and 42.9 per cent over the VWAP of the shares for the one-month period and three-month period, respectively.
Recent privatisation offers made by other Singapore listcos, however, have been starkly different, with some perceived to be shortchanging shareholders.
The privatisation offer by hotel group Amara Holdings : A34 +2.5% last November, for instance, fell through after the offeror, Amethyst Assets, failed to garner 90 per cent in shareholding interest for acceptances.
This meant that the offeror consortium &ndash linked to Albert Teo, the hotel group' s chief executive, other members of his family and private equity investor Dymon Asia &ndash was not allowed to exercise its right of compulsory acquisition over Amara Holdings.
Its offer price of S$0.60 was at a discount of 10 per cent to Amara Holdings' NAV per share of S$0.67 as at end-June 2023.
This was even though its offer represented a 70.5 per cent premium over Amara' s VWAP for the one month up to Jun 15, and a 75.4 per cent premium over the three-month VWAP.
Similarly, Boustead Projects delisted with no compulsory acquisition earlier this year after its parent company, Boustead Singapore, failed to acquire 90 per cent of its non-controlled shares at the final close.
The company had proposed an unconditional cash exit offer for its real estate unit at S$1.18 per share after two previous offers. The final offer remained below Boustead Projects' NAV per share of S$1.265 as at end-September 2022.
Isetan sets the standards
Isetan Mitsukoshi' s exit offer should set the standard for future privatisation deals. Its offer price is an indication of its confidence in Isetan Singapore' s business.
It is also likely a reflection of corporate governance reforms sweeping Japan, which are aimed at improving the valuations of listed companies.
Last year, for instance, the Tokyo Stock Exchange adopted a " name and shame" approach where listed companies that were trading below their book value had to explain why this was the case. The aim was to nudge companies to improve their valuations through peer pressure.
Will local listcos follow suit?
In Singapore, privatisation deals continue to be plagued by a lack of clear standards on what constitutes a " fair and reasonable" deal.
Market watchers have also questioned the independence of independent financial advisers (IFAs) who evaluate exit offers, given that they are ultimately appointed by controlling shareholders who are aiming to privatise their companies.
This is partly the reason why companies have been able to get away with lowball offers that were deemed by IFAs to be " fair and reasonable" but appeared far from fair or reasonable to minority shareholders.
Local regulators and companies should use Isetan Mitsukoshi as an example of how offers should be determined as fair and reasonable.
For a start, regulators can impose a strict benchmark that ensures that exit offers, at a minimum, match the book value of the company, as well as its VWAP over a one-month, three-month and six-month period.
The regulator, or another independent party, can also assign IFAs to determine if a privatisation offer is fair and reasonable. This will remove any conflict of interest between the IFA and the controlling shareholder in the valuation of the exit offer.
These steps could mark the start of fewer lowball offers and hopefully, more companies that take a leaf out of Isetan' s book.
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MrBear12
Supreme |
02-Apr-2024 09:19
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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The Japs have money after decades of saving since their stock market tanked at the end of the eighties. No wonder the Nikkei is soaring! | ||||
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Joelton
Supreme |
02-Apr-2024 09:01
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Japan&rsquo s Isetan Mitsukoshi looks to take Isetan Singapore private at S$7.20 per share
The scheme consideration of S$7.20 per share implies a 37.4 per cent premium over the counter&rsquo s highest closing market price in the past five years
JAPAN&rsquo S Isetan Mitsukoshi is looking to take mainboard-listed Isetan Singapore : I15 0% private by fully acquiring all the shares it does not own, ending the departmental store operator&rsquo s four-decade run on the Singapore bourse.
The proposed privatisation will be achieved through a scheme of arrangement, with a consideration of S$7.20 for each target share, the company said on Monday (Apr 1).
This implies a 37.4 per cent premium over the counter&rsquo s highest closing market price of S$5.24 in the past five years. It also offers a 26.3 per cent premium over the highest intra-day traded price of S$5.70 over the same period.
The scheme consideration is 153.5 per cent higher than the company&rsquo s closing price of S$2.84 on Mar 28, the last trading day. The company called for a trading halt on Monday morning.
It is also 173.4 per cent, 171.1 per cent, 168.9 per cent and 152.4 per cent above Isetan Singapore&rsquo s volume-weighted average price for the one-month, three-month, six-month and 12-month periods, respectively.
Isetan Mitsukoshi believes the acquisition will be an opportunity for shareholders to fully exit their investment, otherwise difficult due to the low liquidity of Isetan Singapore&rsquo s shares.
There are also no other alternatives for shareholders to realise the value of their investment in their shares, Isetan Mitsukoshi said.
The company had attempted to unlock value for shareholders by attempting to divest its assets, particularly its strata title in Wisma Atria. The deal, announced in 2021, was unsuccessful.
&ldquo In addition, it is unlikely for there to be other competing offers for the company, given that the offeror holds more than 50 per cent of shares in the company,&rdquo the offeror noted.
Tokyo-listed Isetan Mitsukoshi is the holding company for Mitsukoshi and Isetan department stores. It owns a direct interest in 21.8 million shares, representing around 52.73 per cent of Isetan Singapore&rsquo s share capital.
The proposed acquisition and subsequent privatisation, which will result in Isetan Singapore becoming a wholly owned subsidiary, will give Isetan Mitsukoshi greater flexibility in its overall business strategy for its international operations and greater operational efficiencies.
&ldquo Privatising the company will also bring the company in line with the offeror&rsquo s other international operations, which are all through unlisted entities,&rdquo it added.
For the six months ended Dec 31, 2023, Isetan Singapore sank into the red with a net loss of S$1.9 million, from a net profit of S$871,000 in the previous corresponding period.
This translated to a loss per share of 4.59 Singapore cents. Revenue was down 3.5 per cent to S$43.2 million.
For the full year, revenue was down 3.8 per cent to S$84.3 million net loss was S$1.2 million, from a net profit of S$1.3 million in the same period the year before.
The scheme will require in-principle approval from the Singapore Exchange for the scheme document and proposed delisting, along with a sanction of the scheme by the Singapore High Court.
It will also need majority approval, representing three-fourths in value of the shareholders present and voting at a scheme meeting to be convened at the direction of the court.
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MrBear12
Supreme |
02-Apr-2024 07:51
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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Delisted 2009, just under a dollar per share.
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moonsun
Veteran |
01-Apr-2024 21:07
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x 0 Alert Admin |
I remember that there used to be a CK Tang ..
What happened? What the delisted price ? |
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MrBear12
Supreme |
01-Apr-2024 20:33
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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Some 15 years ago, our more than 150 years old Robinsons was offered above 7 dollars a share when it last traded closer to 4 dollars. The middle eastern offeror probably liked the brand Robinsons and its established business. How I miss the old Robinsons store! Will we ever hear of Isetan again? | ||||
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MrBear12
Supreme |
01-Apr-2024 20:27
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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Nobody would sell below 3 dollars. No one can accuse management of misleading the public. After all, there is a basis for the valuations by some ' external' valuers. I would be careful to uncritically accept the valuer' s reports which are premised on many assumptions that sometimes do not play out.
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finjungle
Veteran |
01-Apr-2024 20:20
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On your basis about investment properties, the the offerer must be silly to make an offer for $7.00. Why didn' t the offere made an offer of above $2.60-2.70? In accepting and disclosing the high valuation of the investment properties in the annual report wouldn' t the management, the directors and auditors mislead the investing public?
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MrBear12
Supreme |
01-Apr-2024 19:51
Yells: "Cast all our anxieties on Jesus for He cares for us" |
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Again, like in most valuations, esp. investment properties, chickens that have not hatched are counted into the valuation by large margins. One can value the future at sky high prices. But very often, those valuations do not materialise , I?m afraid.
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finjungle
Veteran |
01-Apr-2024 19:38
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It was worth about $9.22 based on the professional valuation of the investment properties carried out for the 2022 financial statements. The offeror would be still in the money with the offer of $7.00
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