The former directors of Singapore Post did not fully consider certain key risks before signing off on the postal service provider's largest acquisition, an independent review has found.
In particular, information relating to certain key risks identified in the course of due diligence and the valuation of TradeGlobal - the loss-making United States e-commerce business that SingPost acquired for US$168.5 million (S$230 million) in October 2015 - was not raised to the board before it approved the acquisition, a report by SingPost's legal counsel has found.
One key risk was that the same business which was sold to SingPost was purchased by the seller, private equity fund Bregal Sagemount, in 2013 at a significantly lower price.
In fact, this price was not made known to the SingPost management until one week before SingPost completed the acquisition, said the report, authored by WongPartnership and filed with the Singapore Exchange late on Monday night.
Second, the earnings and revenue forecasts upon which the TradeGlobal valuation was based were aggressive and may have been over-optimistic, said the report. This information could have been presented to the board in a fairer manner , it added.
The question of whether SingPost may have overpaid for TradeGlobal has long been a sore point for its shareholders.
At first, SingPost stuck to its guns. Then, in May this year, it said it would take a whopping $185 million impairment for TradeGlobal, admitting that the business has "underperformed". In March, it hired FTI Consulting to assess the adequacy of due diligence performed in relation to the TradeGlobal deal.
Meanwhile, WongPartnership was asked by the new board to conduct a review of the circumstances surrounding its predecessor's decision to acquire TradeGlobal. The full report is not out yet, but in an update report out Monday, the firm said the "asymmetrical flow on information" to the board resulted in its oversight.
Notably, although Bregal Sagemount's purchase of TradeGlobal in 2013 was listed as a comparable transaction in the appendix to a Sept 23 board paper, the figures there were all stated as "N.A.".
A copy of the papers setting out Bregal's purchase price was sent to SingPost on Oct 8, one week before SingPost signed the sale and purchase agreement on Oct 15, seemingly without making further due diligence inquiries.
Another troubling point raised by WongPartnership was that the commercial due diligence was neither fully carried out nor fully documented. For instance, a more detailed review of TradeGlobal's performance in 2013 and 2014 may have revealed that its main operating subsidiary had significantly underperformed its forecasts in those years. Despite this, the valuations presented to the board were based only on forecasts, and no valuations based on historical multiples were presented.
The roles of the project management team were also unclear and there were even varying accounts of who was leading it.
The review uncovered other problems with SingPost's corporate governance as well.
"We have observed instances of possible over-stepping of directorial stewardship role in Project Titan (the TradeGlobal acquisition). This would have had the effect of... rendering the system of checks and balances between the non-executive directors and management less effective," wrote the law firm.
WongPartnership noted that SingPost has since taken steps to improve corporate governance, by creating a clear M&A policy, for example. WongPartnership has also recommended that SingPost provide a full copy of its report, when issued, to the relevant regulatory authorities. SingPost has agreed.
SingPost also noted that the review did not cover the post-acquisition phase of TradeGlobal, which faced challenges like disruption of the US fashion retail industry and the loss of two major customers.
The company said it was executing a turnaround plan for TradeGlobal "to recover as much value as possible for shareholders".
SingPost shares fell two cents or 1.46 per cent to $1.35 on Tuesday.