SINGAPORE - The pace of trading has quickened again in recent days as a fresh wave of takeovers sweeps across the market.
One observation about this takeover fever is that companies are not overpaying in order to acquire other businesses or realign their capital structure by taking private units they already control.
But the gripe is that the premiums they offer may not be attractive enough to entice investors, hence the attempts being made to frustrate these privatisation drives.
Take the move by United Industrial Corporation (UIC) to buy up the rest of Singapore Land, in which it holds an 80.4 per cent stake. UIC had offered an 11.24 per cent premium to SingLand's undisturbed price.
However, that still priced the offer at a hefty 33.1 per cent discount to SingLand's book value.
This got the Singapore Exchange to ask ANZ, the offer's independent financial adviser, on how it arrived at its assessment that the offer was fair and reasonable.
But it was the effort by SingLand's second biggest shareholder, Silchester International Investors, to foil UIC's privatisation efforts that was really eye-catching.
SGX listing rules require a listed firm to keep at least 10 per cent of its shares in public hands.
Since Silchester had owned 8.16 per cent of SingLand, this meant the developer's free float was only 11.48 per cent, once UIC's 80.4 per cent stake is factored in.
Silchester moved to pare its stake to below 5 per cent, which increased the public float. "This is likely to significantly impair the efforts of UIC to delist the company. Taking these steps helps to safeguard part of our client's interests," it said, before going ahead with the sell-down.
As of last Thursday, UIC had secured acceptances which increased its stake in SingLand to 87.3 per cent. The offer is extended till today, with its price kept unchanged.
The privatisation wave also includes CapitaLand and its $3.06 billion effort to buy out the rest of CapitaMalls Asia (CMA), in which it already owns about 65.2 per cent.
CapitaLand's offer price of $2.22 apiece gives an investor an attractive 23 per cent premium to CMA's last-traded share price of $1.805 before the takeover was announced.
But one question being raised is whether the $2.22-a-share offer would be attractive enough for investors who have held CMA shares since its 2009 IPO, given the risks they had taken, as they would only be rewarded with a 4.72 per cent premium over the IPO purchase price of $2.12.
This is considering the great strides made by CMA in building up its business. When it was listed in November 2009, it had 86 retail properties - 59 completed malls and another 27 under development - in Singapore, China, Japan, Malaysia and India.
But as at the end of last year, that number had risen to 105 malls - 85 in operation, four to be opened this year and another 16 under development.
CMA's net asset value had also grown 37.7 per cent to $7.3 billion during the period.
So, given the considerable debate triggered over the fairness of the recent takeover offers, the onus falls on the independent directors of the takeover target to come up with recommendations to shareholders so that they can make an informed decision as to whether to accept the offer.
As it is, the takeover code requires the target company's directors to appoint an independent financial adviser (IFA) to assess the merits of the offer. But all will agree that the starting point for them should be to act in the best interests of the company and how to get the maximum value for shareholders in the event of an outright sale.
In the case of Fraser & Neave, its previous board went beyond just merely assessing the IFA's advice.
It created a competitive bid situation using a $50 million break fee as a device to attract a competing bidder, a move that ultimately led to Thai billionaire Charoen Sirivadhanabhakdi sweetening his offer in order to win control of the company.
Some will argue that creating a similar competitive bid situation will be tough as many of the recent takeover targets are already more than 51 per cent controlled by a single shareholder. In such a situation, what the independent directors can do is ask a lot of tough questions. In extreme cases, they should even make it clear to the bidder that they would not be prepared to make any recommendation until the best possible deal is put on the table.
As one corporate lawyer observed, once a company is put in play because of a takeover, the duties of the board should change from one of managing the business to maximising its value at a sale for shareholders' benefit.
That, in a nutshell, is how a takeover should be handled - to ensure shareholders get a fair and reasonable price for parting with their stock.
This article was published on April 21 in The Straits Times.
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