In what seems like a bad case of rumours eclipsing the real deal, a mandatory conditional offer for United Engineers (UE), the engineering, property and hospitality company, was finally triggered at $2.60 a share yesterday, far below the levels it has traded at this year.
As punters hoping for a quick gain faced up to reality, UE shares slipped four cents or 1.48 per cent.
Yet yesterday's closing price of $2.67 remained above the $2.60 offer price from the Yanlord Perennial consortium, suggesting that other investors were willing to stick around for a ride with the new substantial shareholders.
The consortium comprises Yanlord Land Group, Perennial Real Estate Holdings and Perennial's two backers - Mr Kuok Khoon Hong and Wilmar International.
UE retail investors may feel lowballed. The price offered by the Yanlord Perennial team implies a price-to-book value of 0.88 times UE's net asset value per share of $2.95 as at March 31. In contrast, the price-to-book value for historical transactions in the property space averages a ratio of one time, DBS Group Research noted.
So where did the takeover premium go? One lesson here is that stake sales are not the same thing as full takeovers, and do not necessarily create the same premiums. When OCBC Bank and Great Eastern confirmed last September that they were looking for buyers for their UE shares, they would be negotiating only for theirs and the OCBC's founding Lee family's 33.5 per cent in UE.
The rules dictate that any buyer who lifts his ownership in a company beyond the 30 per cent mark must make an offer to other shareholders to buy the rest of the company at the same price.
But that price is essentially what OCBC is willing to accept for divesting a non-core asset that is already deep in the money. OCBC's historical book cost for each UE share was $1.65. For Great Eastern's units, the cost was $1.54.
This is different from UE being approached with a general offer.
Other factors that could have cooled any overzealous bidding include a patchy recovery in China's property market and the the fact that UE's Singapore crown jewels - the freehold properties UE BizHub Tower in Anson Road and UE BizHub West in Alexandra Road, as well as UE BizHub City, which is built on rare 929-year leasehold land - might require more capital expenditure to rejuvenate.
Private investor Goh Han Peng also noted that UE is now primarily an office landlord, at least since Eight Riversuites was completed.
Compared with the price-to-book trading range of peers like Hongkong Land, UIC, UOL and Frasers Centrepoint, the 0.88 price-to-book ratio for UE is actually at the higher end of the range. "UE also revalues its investment properties annually and as such, the market value of its properties is largely reflected in its book value," said Mr Goh.
Nevertheless, because UE has been on the selling block for so long with market expectations for a bullish buyout priced in, $2.60 a share is probably going to underwhelm many investors.
OCBC's intention to dispose of UE can be traced all the way back to August 2014 when rumours first emerged that it was in talks with Thai billionaire Charoen Sirivadhanabhakdi. This is the same man to whom OCBC had sold its holdings in Fraser & Neave and Asia Pacific Breweries.
Mr Justin Tang, director of global special situations at Religare Capital Markets, said: "I don't think they should accept (the offer), but given that the bid was shopped around, there is a low likelihood of competitive bids."
In the event that the offer lapses without Yanlord Perennial getting enough acceptances, UE's shares will fall back to $2.55 at worst, he estimated. Yanlord Perennial itself has said it intends to keep UE listed. It has some way to go before it can cross the 50 per cent mark it needs to make its offer unconditional.
