Lessons from across the causeway: A &lsquo lopsided&rsquo SPH&rsquo s privatisation deal

• By  Cheah Chor Sooi
• 10/10/2021
• in  Featured,  Markets

THE recent takeover offer by Keppel Corp Ltd of the non-media assets of Singapore Press Holdings Ltd (SPH) as part of the latter&rsquo s ongoing restructuring exercise is a good eye opener from two fronts.

Although the chain of events bears no Malaysian interest, the first eye opener is that it showcases the undeniable fact that the global print media business can be best categorised as a sunset industry.

On May 6, SPH announced its intention to restructure and hive off of its media business into a company limited by guarantee (CLG).

For the record, SPH was formed in 1984 through a merger of three organisations &ndash the Straits Times Press group, Singapore News and Publications Ltd and Times Publishing Bhd. That  merger consolidated three flagship newspapers in different languages under one roof, notably  The Straits Times,  Lianhe Zaobao  and  Berita Harian.



At an extraordinary general mreting (EGM) on Sept 10, SPH shareholders voted in favour of the proposed restructuring which would see the group&rsquo s media business being transferred to a CLG.

The second eye opener is very much a lesson to the minority shareholders&rsquo fraternity as it has to do with their rights.

On Aug 2, Keppel Corp joined the fray with a privatisation offer which values SPH shares at S$2.099/share. While the offer price is above current trading price of SPH (S$1.98 as of Oct 8), it does represent a slight discount to the company&rsquo s net asset value (NAV) of S$2.26/ share.

The takeover-cum-privatisation offer proposal by Keppel Corp will be tabled for SPH&rsquo s shareholders&rsquo approval at another EGM that will be held before end-2021.

Shortchanging minority shareholders?

  However, rights-conscious minority shareholders and market observers have raised several red flags as the privatisation scheme mooted by Keppel Corp appears to be heavily skewed to the company&rsquo s favour.

By and large, SPH&rsquo s latest earnings results seem to reinforce the fact that the deal undervalues the stock with Keppel Corp realising an instant gain with their offer.

For its financial year ended Aug 31, 2021 (FY8/2021), SPH swung into the black with a net profit of S$92.9 mil amid a slight increase in revenue from continuing operations and fair value gains on investment properties.

Such feat reverses its net loss of S$83.7 mil in the previous financial year which had included S$232 mil in fair value losses on investment properties. This is despite the group&rsquo s media operations were reported under discontinued operations.

Operating profit from continuing operations grew 69.8% to S$206.7 mil. &ldquo The improved performance was across all segments, including retail & commercial and purpose-built student accommodation (PBSA) despite the ongoing disruption from COVID-19, especially in the earlier part of the financial year,&rdquo noted SPH.

Against such backdrop, SPH&rsquo s minority shareholders are bemoaning multiple lopsided benefits that tend to benefit Keppel Corp.

SPH&rsquo s stable of assets include development assets that have been stated at cost and not revised net asset value (RNAV). Keppel Corp&rsquo s offer does not factor in the premium to cost that potential acquirers would pay to acquire the assets out right.

Furthermore, Keppel Corp&rsquo s offer is based on a multiple of balance sheet NAV that does not take into account the value attributed to asset managers of SPH REIT and its UK purpose-built student accommodation (PBSA.

Another glaring example of this deal that favours Keppel Corp is SPH effectively distributing away control of SPH REIT with no control premium for the benefit of Keppel Corp.

With the distribution of the 45% stake in SPH REIT leaving SPH (parent company) with only 20% of stake in SPH REIT, Keppel Corp would be able to circumvent making a mandatory general offer (under the Singapore Takeover Code) to minority shareholders given that SPH no longer holds more than 30% of SPH REIT.



Hence, SPH REIT shareholders do not get the opportunity to exit via a mandatory general offer (MGO) offer. They lose out on a cash exit opportunity especially as there is very little liquidity in KREIT shares offered in in specie to SPH shareholders.

Moreover, Keppel Corp&rsquo s offer includes Keppel REIT (KREIT) shares that SPH shareholders are forced to receive. The offer is to the benefit of Keppel Corp as it allows the company to be asset light by decreasing its shareholding in KREIT from 46% to 20%.

Governance issue

Above all else, Lee Boon Yang who served as Keppel Corp chairman from 2009 to April 2021 (when he retired) is also currently the SPH chairman (since 2011).

He therefore has significant inner knowledge of both companies even though he has recused himself from the SPH board committee that has recommended shareholders to vote in favour of the Keppel Corp privatisation transaction.

Considering that more than 50% of SPH&rsquo s shareholders are retail shareholders and in view of legacy management share structure where shareholders are unable to have a proper vote to elect directors to the SPH board, critic of the exercise is of the view that retail and institutional shareholders need a voice to raise their concerns and demands.

What is vital here is that the SPH board should view corporate governance issues seriously without taking advantage of the retail shareholders. For example, the board can make public all offers received by Keppel Corp &ndash or other interested parties &ndash including cash offers and offers for the various SPH assets.

Also, in light of the better earnings performance, SPH shareholders deserve to hold out for a higher offer. &ndash Oct 10, 2021