Great Eastern minority shareholders seeking better offer from OCBC

SINGAPORE – A group of minority holders of Great Eastern Holdings are resisting the

$1.4 billion takeover bid

from OCBC Bank, opening a new front in a longstanding fight between shareholder activists and Singapore’s second-largest bank.

The price of $25.60 per share is well above the stock’s price before the announcement. Some share­holders, however, point to a 30 per cent discount against Great Eastern’s embedded value, a metric that has been used to value insurance firms elsewhere. By that measure, it is half the valuation the bank used in its last attempt to take full ownership of the company.

OCBC, which holds more than 88 per cent of Great Eastern, said earlier in May that it is seeking to delist the stock.

“We are now caught between a rock and a hard place,” said former remisier Ong Chin Woo, who owns Great Eastern and OCBC shares.

Since 2021, he has been a vocal spokesman for a group that now comprises more than 100 minority shareholders. “If OCBC has no other­ choices, at least give us a fair exit offer,” he added.

An OCBC spokesperson defended the number, saying it reflects a roughly 40 per cent premium over the price in both the month and the year before the announcement, as well as in multiples of the insurer’s book value and other financial metrics.

Morgan Stanley banking analysts said the offer is “high”, will contribute positively to earnings at OCBC, and make management of the combined entity easier.

The bank has steadily built its 88.44 per cent stake in the 116-year-old insurer, which operates in Singapore, Malaysia and Indonesia. Over the past 10 years, Great Eastern has contributed an average of about $700 million a year in net income to OCBC, equivalent to about 15 per cent of OCBC’s annual profit, according to the bank.

Over the past decade till the end of 2023, OCBC shares have risen more than 30 per cent, while Great Eastern’s have dropped 1 per cent. The insurer’s minority shareholders have been lobbying for years for higher dividends and better liquidity.

They have also objected to using OCBC stock to reward Great Eastern executives like chief executive Khor Hock Seng, whose long-term incentives have been paid in OCBC shares.

Great Eastern told investors in April that it has taken steps to strengthen capital management and improve dividend payouts but that many of the factors that affect share prices are beyond its control.

As for the executive compensation, the insurer said the structure helps to foster the “One OCBC Group” spirit with its holding company, and using Great Eastern shares would impact the stock’s liquid­ity.

OCBC’s current offer ascribes zero value to Great Eastern’s future underwriting and to its agency network, said Maybank Securities analyst Thilan Wickramasinghe.

“There are risks that OCBC might have to make a higher offer in order to narrow that discount gap,” he added.

Some members of Singapore’s old­est business clans are invested in the outcome. Companies linked to businessman Lee Thor Seng, part of the clan that co-founded OCBC, have a stake.

Mr Wong Hong Sun, whose grandfather was chairman of Great Eastern for close to 20 years, holds more than three million shares.

“Even if I am not sentimental, I won’t sell,” he said. “Half price is no way.”

Great Eastern has appointed EY as an independent financial adviser to assess the merit of OCBC’s offer and make a recommendation to shareholders. OCBC will dispatch the offer document to Great Eastern shareholders no later than the end of May, and the offer opens for at least 28 days, according to the current timeline.

“Normally, you’d pay a substantial premium to take a majority stake of a company,” Bloomberg Intelligence analyst Steven Lam said.

But listed insurance firms are rare in South-east Asia, making it difficult to find a comparable benchmark.

“This time, we are dealing with a minority stake of 11.56 per cent,” he added. BLOOMBERG