News analysis

For SPH shareholders, Keppel's offer is not perfect but it is the best on the table

Shareholders of Singapore Press Holdings have an offer from Keppel Corporation to buy out their shares via a $3.4 billion part-cash, part-Reits offer.ST PHOTO: GIN TAY

SINGAPORE - After waiting for what might seem like an eternity, shareholders of Singapore Press Holdings (SPH) have an offer from Keppel Corp to buy out their shares via a $3.4 billion part-cash, part-Reits offer.

Documents that have been circulated indicate that this gives them an opportunity to realise the value of their SPH shares at a premium of 39.9 per cent to the last traded price before SPH announced a strategic review of its businesses in March this year.

Here's the skinny.

Shareholders will receive cash of 66.8 cent, plus 0.596 Keppel Reit units (translating into 71.5 cents) and 0.782 SPH Reit units (or 71.6 cents) for every SPH share they own.

So the total value of all of this is $2.099 per share.

In short, for every 1,000 SPH shares owned, the shareholder gets $668 in cash, $715 worth of Keppel Reits and $716 worth of SPH Reits.

In all, this values SPH at $3.4 billion. The company's market cap last Friday was $3 billion.

Keppel's offer was deemed the best and most complete of some 20 offers on the table. Some offerors simply wanted to "cherry-pick" selected assets, and leave SPH with its debts and "less desirable" assets.

The offer is a 5 per cent premium to SPH's 52-week high, and a 112 per cent premium to its 52-week low late last year. And it is a 29.5 per cent premium to the volume weighted average share price over the last six months.

The offer price is also equivalent to SPH's adjusted net asset value per share, excluding the media business.

Just for a quick background, all this is part of a plan to demerge SPH's struggling media business from its more profitable property business. Ironically, the property business owes its formation and existence to the profits accrued from the media business, which includes The Straits Times, during its more profitable years.

The arrival of the digital era has been brutal to SPH's media, primarily print.

Today, the print media is in structural and sequential decline. Although print ad revenues is still SPH's biggest source of ad revenue, it is heading southwards, and that is the challenge

And there is no light at the end of this dismal tunnel.

So what happens next?

Shareholders will have to vote on the demerger of the property and print business at an extraordinary general meeting (EGM) expected to be convened in August or September. At least 50 per cent of participating shareholders will have to vote for the demerger.

Then, by October or November, SPH shareholders will again vote on the Scheme of Arrangement at an EGM to allow the privatisation and purchase by Keppel. Attendant shareholder vote has to be at least 75 per cent for the deal to go through.

That said, the history of Singapore corporate mergers and acquisitions is full of stories of new and higher offers. So one cannot rule out a new party - perhaps a global private equity outfit - making a higher offer for SPH's property business.

If that happens, the appointed independent financial advisers will have to make an informed appraisal if that new offer is of higher value and more beneficial to all shareholders of SPH.

Meanwhile, shareholders should first vote for the demerger of the challenged media company from the listed property entity.

But as it stands, if this Scheme of Arrangement goes through, SPH will be delisted and become a wholly owned subsidiary of Keppel Corp.

The deal will give Keppel access to SPH's real estate footprint, which includes malls, residential properties, a portfolio of properties for student accommodation as well as nursing homes.

Keppel said SPH provides a quality portfolio of businesses and assets that is aligned with and complements three out of Keppel's four focus areas and, hence, represents a "unique opportunity" for the company.

As for SPH shareholders, they will get the cash and Reits units, and move on.

Meanwhile, SPH's media business would have been hived off as a separate not-for-profit entity, supported by the government and private foundations.

So all that is now needed is for SPH shareholders to vote on the deal.

Should they bite?

Many shareholders who have held this stock for many years will baulk at selling their shares at below their purchase price, which for some is above $3.00. Buy high, sell low? No!

But here's the thing.

SPH was trading at much higher prices in earlier years (its volume weighted average price in 2015 was $4.06, and in 2016 was $3.81, $3.05 in 2017) because print media was still a lucrative business.

Print advertisements provided strong income for the group, much of which was used to acquire and build up SPH's considerable property portfolio over the years.

The advent of social media, including the likes of Facebook and Google, and their entry into the news distribution and advertising business changed everything. Over the past three years or more, revenue from print advertising has been trending downwards.

One only needs to compare today's ST Classifieds section with what it used to be in 2015, 2016 or earlier to realise the sad reality.

Yes, ST and other SPH newspapers have seen their digital subscriptions leap, but as the saying goes, every dollar lost in print ads gets replaced by just a few cents in digital ads.

Unless print media does a rapid turnaround, the days of $3.00 or $4.00 price levels for SPH are well and truly over.

There is another aspect to consider.

While SPH stock has been declining, the company has nevertheless paid out generous dividends.

So if anyone has held SPH since 2015, he or she would have collected almost 85 cents of dividend to date. Add that to the $2.099 offer, and shareholders are actually walking away with almost $2.95 per SPH share.

Shareholders will also get to continue collecting dividends - averaging 5 per cent to 6 per cent - on SPH Reits and Keppel Reits. And they will also collect SPH dividends for this year ending August 2021.

This is by no means a perfect solution. But it is the best solution under the current circumstances.

It gives long-suffering shareholders an opportunity to unlock and maximise value. Painful as it may be, shareholders should vote for it.