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Property-focused SPH to be acquired by Keppel after hiving off media assets

Jovi Ho
Jovi Ho • 7 min read
Property-focused SPH to be acquired by Keppel after hiving off media assets
Ng Yat Chung, CEO of SPH, says the offer is the result of a strategic review process that has taken place over many months.
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Singapore Press Holdings (SPH), which runs one half of the media duopoly in Singapore, is used to having its journalists called to attend last minute press briefings. In the last three months, the company did just that — not once, but twice — as the property and media company became the news instead of just reporting it.

On the morning of Aug 2, shares of SPH were suspended from trading. The company had requested the trading halt in view of a major announcement to be released. As it turned out, SPH and its non-media assets are getting acquired by conglomerate Keppel Corp.

See: Taking SPH’s assets apart to recycle

See also: Keppel plays another lead role in ongoing remaking of Singapore Inc

As part of the proposed $3.4 billion privatisation offer, SPH will delist and become an indirect wholly owned subsidiary of Keppel. This will be undertaken via a scheme of arrangement by Keppel Pegasus, a wholly owned subsidiary of Keppel.

The scheme includes SPH distributing in specie of about 45% of its stake in SPH REIT — valued at about $1.16 billion — to SPH shareholders. SPH will retain a 20% stake in SPH REIT.

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Under the proposed offer, SPH shareholders will receive cash of 66.8 cents, 0.596 Keppel REIT unit and 0.782 SPH REIT unit for every SPH share held. The total consideration of $2.099 per share represents a 16.2% premium over the one-month volume weighted average price (VWAP) of SPH shares on July 30.

It also represents a 11.6% premium to the last traded price of $1.88 per share on July 30 and a 21.4% premium to the three-month VWAP of $1.729 per share in SPH.

The scheme, however, is contingent on the successful completion of SPH’s restructuring exercise of its media business.

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See also: Proposed privatisation deal of SPH by Keppel Corp 'seems fair': analysts

On May 6, the company announced that it is hiving off its media business into a public company with a limited by guarantee (CLG) structure. The transfer of the media business to the CLG is subject to shareholder approval at an EGM expected to be convened in August or September 2021.

Upon obtaining shareholder approval, the completion of the restructuring exercise, including conversion of the management shares to ordinary shares, is expected to occur by December 2021. This is expected to be followed by the privatisation of SPH by Keppel.

Ng (seen here in a 2013 file photo): More than 20 parties were approached, and a lot of them responded positively with their proposals

Ng Yat Chung, CEO of SPH, says the privatisation offer is the result of a strategic review process that has taken place over many months. “We took the first step with the media restructuring to ensure a sustainable future for the media business, while removing its losses from SPH. The next step was a thorough process to unlock and maximise value for all shareholders for the remaining company,” he says.

Keppel among 20 parties ‘approached’

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For the most part, SPH is best known for its media business in print, digital and radio. SPH was the merger of three organisations, namely The Straits Times Press Group, Singapore News and Publications, and Times Publishing, in 1984. The company forms one half of a duopoly in Singapore’s tightly controlled media industry.

Among its publications is The Straits Times, which started publication in 1845. The English-language daily has endured the Japanese occupation during World War Two, Singapore’s independence from the British in 1963 and the unceremonious separation from Malaysia in 1965.

With SPH announcing that it is hiving off its media business, that essentially leaves the company with its property business.

The company currently owns a 65% stake in SPH REIT, which owns three shopping malls in Singapore — Paragon, The Clementi Mall and The Rail Mall.

In Australia, SPH REIT holds an 85% stake in Figtree Grove Shopping Centre and a 50% stake in Westfield Marion Shopping Centre.

See also: SPH appoints Evercore Asia (Singapore) as independent financial advisor for proposed privatisation deal

In addition, SPH owns and operates The Seletar Mall, and is developing an integrated development consisting of The Woodleigh Residences and The Woodleigh Mall.

It is also an owner, manager and developer of a portfolio of purpose-built student accommodation (PBSA) in the UK and Germany. It currently operates two distinctive brands, Student Castle and Capitol Students.

In Singapore, SPH owns Orange Valley, one of the country’s largest private nursing homes.

No doubt, SPH has become an attractive M&A target for companies looking to scale, especially those that operate in the property industry.

In fact, SPH went looking for prospective acquirers. Ng says Keppel was “one of many” parties SPH approached.

“More than 20 parties were approached, and a lot of them responded positively with their proposals,” he says.

When asked by reporters if SPH chairman Lee Boon Yang had played a role in the proposed privatisation, Ng denies that was the case. The question arose as Lee was also the non-executive chairman of Keppel until he stepped down from the board in April.

“Because of his position as a former chairman of Keppel, he recused himself from the decision to select proposals [and] all discussions regarding the details of the agreement,” says Ng.

As with many M&As, there are bound to be redundancies in the form of overlapping roles, leading to job cuts. Ng says he does not rule out that job cuts could occur across the company after the acquisition, but he prefers to dwell on the positives.

“There is always the possibility of some rationalisation in every M&A,” he says. “My personal view is that with Keppel, the staff of SPH will have great opportunities for growth and career development within a much bigger ecosystem.”

Could the proposal lead to changes in senior management, including Ng’s role? “Thank you very much for your concern for SPH senior management,” he says with a laugh. “We will cross that bridge when we come to it. This is something we have not discussed with Keppel,” he explains.

Upbeat sentiment

Analysts who track SPH are positive on the proposed offer. DBS Group Research says the offer will give shareholders an opportunity to monetise the non-media business after the selloff of SPH’s media business.

“We recommend SPH [shareholders] to accept the offer that is priced attractively at a one-time book [value],” DBS analyst Geraldine Wong writes in a note dated Aug 3.

She has a “hold” rating for the stock with an unchanged target price of $1.92.

See also: Khaw Boon Wan to become chairman of SPH's not-for-profit media entity

See also: Former SPH deputy CEO Patrick Daniel to be interim CEO of SPH Media CLG

See also: Investors take umbrage with SPH’s restructure by selling down

See also: SPH to cut loose former core media business with $351.3 million send-off package

OCBC Investment Research says the proposed offer strikes a balance between maximising value and minimising disruption for shareholders.

“In our view, the deal looks fair in both unlocking value for SPH shareholders and avoiding a situation where prime assets may be cherry-picked, while the receipt of SPH REIT and Keppel REIT units will allow shareholders to still participate in the recovery prospects of the retail and commercial real estate segments at attractive dividend yields,” the OCBC research team writes in an Aug 2 report.

Shares of SPH closed flat at $1.92 on Aug 4.

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