In 24 May 2000, United Industrial Corp (UIC) owns close to 60% of Singapore Land. Over the next 14 years, UIC accumulated Singapore Land shares up to 80%. Finally on 24 Feb 14, UIC offered $9.40 to buy out the remaining shares of Singapore Land.
What’s so great about Singapore Land?
Singapore Land is a property investment and development company, and partly owns numerous properties in Singapore.
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So what if Singapore Land part owns these properties? What if these properties are sold at a discount to market value? How does that sound to you?
The guys behind the deal are Wee Cho Yaw (4th richest man in Singapore) and John Gokongwei (3rd richest man in Philippines). They own UIC. I am sure these guys know how to do business and know what is a good deal.
In fact, Singapore Land has been trading below its Net Asset Value for a long time. The Net Asset Value per share is $13.96 (based on 31 Dec 12 annual report). Even if I exclude some of the assets, the Conservative Net Asset Value per share is $10.50. Offering $9.40 is way below the real value of the properties. What a great move by Mr Wee Cho Yaw and Mr Gokongwei.
Singapore Land was one of the very discounted stocks based on our Conservative Net Asset Value Screener. It was timely that our first Value Investing Mastery Course completed just before the offer and one of the students was rewarded without waiting too long. This doesn’t happen all the time when it comes to investing.
Should you Sell Singapore Land?
The tricky part is that UIC already owns 80% of Singapore Land and they just need to acquire another 10% to delist the company. If you do not wish to sell because it was a low-baller price, you risk becoming a minority shareholder of a private company. But if UIC did not manage to accumulate another 10%, they will likely offer a higher price for the remaining shares. What should you do? Let’s look at the situation.
836,000 + 851,000 shares have changed hands in the following two days after the announcement. It only represented 0.4% of the total shares. And shares were trading above the offer price of $9.40, which means the market expects the bid to be higher
, or it could be UIC buying from the open market (there weren’t announcements of trades from significant shareholders/directors).
Looking at the shareholder statistics, Silchester International (a fund) owns 8.16% of Singapore Land. This makes them the crucial deal maker or deal breaker. UIC will have a high chance of acquiring Singapore Land if Silchester agrees to sell off the stake at $9.40. If I am Mr Wee, I would discuss with Silchester and agree on a price. However, I think this is unlikely because Mr Wee could have negotiated for a private deal for the shares and not resort to announcing the offer to the public. It is more likely UIC is trying to entice retail investors to sell their shares so that they can meet 90% ownership and eventually force Silchester out of the game with 8% of Singapore Land.
If retail investors can unite with Silchester to keep the shares, there is a possibility for higher offer from UIC. And I think $13.96 is not an unreasonable price to ask for.
$9.40 is sick.