PLANS to delist Great Eastern Holdings (GEH) have taken another step forward after the number of shares owned or agreed to be acquired by offeror OCBC and its concert parties crossed 90 per cent on Jun 24.
As the 10 per cent free float threshold required for trading to continue has not been met, trading in shares of GEH will be suspended at the close of the offer on Jul 12.
GEH’s shareholders have to decide whether to accept the offer, which has been deemed “not fair but reasonable”, or face uncertainty over what happens to their shareholdings if the counter is suspended or delisted.
To recap, OCBC on May 10 made a S$1.4 billion voluntary unconditional general offer for all the shares it does not already own in GEH at S$25.60 apiece, with plans to delist the insurer.
News of the potential privatisation has since lifted GEH’s share price to S$25.65, after the market closed on Tuesday, hovering slightly above the offer price.
For it to be an exit offer, however, the general offer must fulfil two criteria. First, the offeror needs to get 75 per cent of the remaining shares it did not already own before the launch of the offer. Second, the offer must be deemed “fair and reasonable” by an independent financial adviser (IFA).
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That means the lender must get enough acceptances for it to control 97.17 per cent of GEH.
At that point the offer was made, the lender and its concert parties owned 88.67 per cent of GEH. About 11.33 per cent shares were not owned by OCBC, as at the day of the initial offer.
On Jun 14, OCBC declared the offer price to be final and extended the offer’s closing date to Jul 12.
IFA’s opinion on the offer
Although the offer represents a 36.9 per cent premium over GEH’s last traded price before the offer announcement, it was also at a 30 per cent discount to GEH’s embedded value per share of S$36.69 as at Dec 31, 2023.
The offer was deemed “not fair but reasonable” by EY, the IFA to the deal.
In ruling the offer “not fair”, EY considered the offer’s 30 per cent discount to GEH’s embedded value per share and noted that the offer price of S$25.60 per share is lower than its derived range of values for GEH’s shares of between S$28.87 and S$36.19.
That being said, the offer was deemed “reasonable” due to other factors, such as Great Eastern’s low historical trading price and liquidity. The IFA also does not expect other general offers to be capable of turning unconditional or succeeding, considering OCBC’s majority stake in Great Eastern.
What now? Looking at the possible scenarios…
As at Jun 25, OCBC and its concert parties own or control 90 per cent of GEH. With the 10 per cent free float lost, trading in shares of GEH will be suspended after the offer closes on Jul 12.
What will become of GEH rests on the percentage of GEH shares which OCBC owns after the offer closes.
There are two key metrics to look out for: whether OCBC gets 75 per cent of the shares it did not already own, or 97.17 per cent of total GEH shares; whether it gets 90 per cent of shares it did not already own, or 98.87 per cent of total GEH shares.
Scenario 1: Offeror fails to get 75 per cent of shares they did not already own
As at Jun 25, the lender could find itself in this scenario, if its ownership of GEH shares remains at less than 97.17 per cent of the total shares in GEH.
Trading in shares of GEH will be suspended if the situation remains as such until the Jul 12 deadline. GEH is likely to be asked by the Singapore Exchange Regulation (SGX RegCo) to restore its free float, which may involve placing out its shares.
OCBC, for its part, has announced that it has no intention to restore the free float.
Shareholders of the insurer will find themselves in limbo after Jul 12, as there will be no trading of the counter.
Scenario 2: Offeror gets at least 75 per cent but less than 90 per cent of shares they did not already own
Alternatively, if OCBC gets at least 75 per cent of the shares it did not already own – which works out to a total shareholding of 97.17 per cent – SGX Regco may eventually direct GEH to make an offer to delist.
However, there is no guarantee when or if this will happen.
Trading will remain suspended until the free float is restored, or an exit offer is made.
Scenario 3: Offeror gets 90 per cent of shares they did not already own
Acquiring more than 90 per cent of shares it did not already own entitles OCBC to exercise the right to acquire the remaining shares through compulsory acquisition.
OCBC will take the insurer private.
Magic number: 97.17%
Long-term GEH shareholders have publicly told the Securities Investors Association (Singapore), or Sias, that “they will not accept this offer as they feel that GEH has been trading below the true value for the longest time”.
There are two key shareholders who together hold around 3 per cent of GEH.
One is businessman Lee Thor Seng, part of the clan that co-founded OCBC, who holds the stake via various companies.
The second would be Wong Hong Sun and his brother Hong Yen; their grandfather was chairman of GEH for close to 20 years. Wong was quoted as telling BT that he will not sell his stake.
If these two shareholders do not budge, it looks tough for OCBC to hit the 97.17 per cent stake that it requires.
Suspension looming
If OCBC fails to get this 97.17 per cent total shareholding by the end of the offer, GEH is likely to be asked by SGX RegCo to restore its free float by way of a placement or other means.
If no effort is made to restore the free float, GEH shares could remain suspended until a new offer – one that is deemed “fair and reasonable” – is made.
Some investors have raised the case of Boustead Projects, which faced a trading suspension and remained in limbo for a period of time following a contentious privatisation deal mounted by parent company Boustead Singapore last year.
Boustead Singapore launched a voluntary unconditional offer of S$0.90 per share for all the shares in Boustead Projects it does not own. The price was later revised to a final offer of S$0.95, which was criticised for its discount to asset value that was “too large to ignore”.
The IFA for the deal had also opined that the offer was “not fair but reasonable” as it was not within its final estimated valuation range of between S$1.17 and S$1.38 per share.
Boustead Projects later lost its free float after the offer closed, and was caught between two sets of rules.
Boustead Projects was directed by SGX RegCo to restore its free float, but was not allowed to make another offer that was better than the first within a period of six months, based on the Singapore Code on Takeovers and Mergers.
Six months later, an exit offer of S$1.18 per share was made. Boustead Projects was then delisted with no compulsory acquisition after Boustead Singapore failed to acquire 90 per cent of its non-controlled shares at the final close.
