Temasek Holdings is buying out troubled transport firm SMRT, which has seen multiple breakdowns on its lines in the past few years.
Temasek said yesterday it is offering $1.68 a share - a premium over the firm's last closing price of $1.545 - in a deal that will cost the investment company $1.18 billion.
A successful buyout will see SMRT delisted from the Singapore Exchange (SGX), 16 years after it went public.
The deal has been structured as a scheme of arrangement. This means a majority of the shareholders who hold at least 75 per cent of shares must approve the deal or the offer will fall through. This will take place at a meeting likely to be convened some time in October, and Temasek cannot vote.
Temasek said it will not revise its offer price. It will have to wait a year to try again if the offer fails.
The buyout announcement yesterday comes on the heels of the announcement of a new rail financing framework (NRFF) last Friday. This will involve SMRT disposing of its rail assets to the Land Transport Authority (LTA) for close to $1 billion. In return, SMRT will pay a licence fee to the LTA for the rights to operate the lines with effect from Oct 1.
While this frees SMRT from heavy capital expenditure, SMRT
said the new framework poses challenges.
SMRT chief executive Desmond Kuek said last night that
significant business risks remain and "many factors are outside the control of SMRT", such as uncertainty over future fare increases and ridership numbers. He said: "The key difference between being publicly listed and privatised is the ability to think long term."
SMRT chairman Koh Yong Guan agreed: "Taking the company private will allow SMRT to better fulfil its role as a public transport operator without the pressure of short-term market expectations."
SMRT's earnings might be hit in the short term as it makes the necessary investments, but Temasek is taking a long-term view, said Temasek International president Chia Song Hwee.
He noted that the sustainability of SMRT's business was a key consideration for Temasek, adding: "In the short run, there will be pressure on the bottom line, but there are plans to improve service quality and productivity. We have no intention of losing money (by taking SMRT private), though as with all investments, there are risks."
Mr Chia also said Temasek "fully supports the management and board in going through with their plans", noting that "Temasek is an active investor but we're not an operator".
A trading halt of SMRT's shares was called last Friday. Trading resumes today.