Singapore Press Holdings (SGX:T39) is hot stuff after trimming its media operations

Who would have thought that after trimming its media operations, Singapore Press Holding (SGX:T39) would become so attractive among other companies?

Keppel Corporation (BN4) was the first to propose acquiring Singapore Press Holdings (SPH) through a privatisation offer on 2 August 2021. The full breakdown of this agreement can be found in Alvin’s video.

On 28 October 2021 Cuscaden Peak, a Temasek-linked consortium of three property firms came out of nowhere and proposed an alternative offer for SPH. This is interesting, and if you own shares in SPH, you should keep reading. Well, even if you aren’t, it might be a worthwhile read for you!

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Updates thus far:

SPH acquisition updates (Final deal for SPH shareholders)

Keppel’s revised Proposal for SPH (as of 9 Nov 21)

Keppel Corporation Limited has made a revised bid for SPH on 9 November 2021. The monetary components of the consideration have now been enhanced by $0.20 per share, bringing the total offer to $2.351 per share (12% higher than Keppel Original offer and that of Cuscaden Peak’s).

This is Keppel’s final offer and would be the quickest way for SPH shareholders to receive its consideration by mid-January 2022.

The following is a rough timeframe for the entire process. By 8 December, SPH will hold a scheme meeting for shareholders to vote on Keppel’s scheme.

During the EGM/ Scheme meeting, 50% of the total vote cast by SPH Shareholders must be in favour of the resolution, and for the scheme resolution, it must at least have 75% of all the total vote cast.

That being said, SPH is not prohibited from entering into a legally binding agreement with another entity that makes a competitive bid, but it must do so by 16 November. Should a Superior Competing offer become effective, the Break Fee will still apply.

If a competing general offer is made before 16 November, SPH has the right to hold the scheme meeting on or adjourn it to a date no later than 21 days after the announcement.

Cuscaden Peak’s revised Proposal for SPH (as of 15 Nov 21)

Cuscaden Peak has increased its offer for SPH on November 15, 2021, after Keppel raised theirs last week. Each SPH shareholder can now select the option that best meets their needs under the new offer.

• Option 1: S$2.360 per SPH share, paid fully in cash, OR
• Option 2: S$1.602 in cash and 0.782 SPH REIT units (S$2.4001 per SPH share)

Given that Cuscaden Peak’s options provide more value and cash than Keppel’s offer of S$2.351 per share, SPH and Cuscaden have signed an implementation agreement.

As Cuscaden does not require shareholder approval, this transaction may very well be finalised by February 2022 if all goes according to plan. All that remains is for SPH shareholders to accept the deal and for all regulatory procedures to be completed.

Unless a new challenger emerges, I believe it is more or less a done deal.

So, if you are a SPH shareholder what should you do now? First and foremost, your Vote Counts!

In order for the Cuscaden Scheme to be approved, you must do both:

1. vote against the Keppel Scheme AND
2. vote in favour of the Cuscaden Scheme.

This is important because the transaction will fall through if shareholders fail to reject Keppel’s offer or fail to accept Cuscaden’s offer.

So make your vote count!

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Keppel’s Original Proposal to acquire SPH

Let’s start with a recap of the Keppel proposal:

As part of Keppel’s proposal, for each unit of SPH stock they own, SPH shareholders will receive:

• S$0.668 in cash,
• 0.596 Keppel REIT units, and
• 0.782 SPH REIT units.

This total consideration of S$2.099 per share represents a 39.9% premium over the last market price of S$1.5 per share on 30 March 2021, before the Strategic Review was published.

With Keppel REIT and SPH REIT trading at S$1.13 and S$0.98, respectively, as of 28 October 2021, the total consideration is now around S$2.108 (A slight increase due to the improvement of SPH REIT share price).

To put that amount in perspective, SPH is currently trading at S$1.99, or 5.9% less than the total consideration.

According to this timeline from August, an EGM was supposed to happen soon to seek shareholder approval of the acquisition after the media business was shelved. And if all goes smoothly, it was expected to be finalised by the end of the year.

But a new challenger has emerged…

Cuscaden Peak Pte Ltd’s Proposal to acquire SPH

I bet you didn’t see this coming. Neither did I.

When the market opened on 28 October 2021, Cuscaden Peak issued an announcement and proposed a counteroffer for SPH. In return for SPH, the consortium is offering S$2.10 per SPH share in CASH. Yes, entirely in cash.

Instead of owning partial shares of Keppel REIT and SPH REIT, which may or may not be a decent REIT (you decide), this could be a better bargain for SPH holders looking for a clean exit.

Wait…what is Cuscaden Peak Pte Ltd?

So, who is Cuscaden Peak and why are they interested in SPH assets?

As of the announcement, Cuscaden Peak is a Temasek-linked consortium of three property firms, namely:

• Tiga Stars Pte. Ltd (a subsidiary of Hotel Properties Limited) with 40% ownership,
• Adenium Pte. Ltd (a wholly-owned subsidiary of CLA Real Estate Holdings Pte Ltd) with 30% ownership and
• Mapletree Fortress Pte. Ltd (an indirect, wholly-owned subsidiary of Mapletree Investments Pte Ltd) with 30% ownership.

Tiga Stars Pte. Ltd (TSPL)

TSPL is an investment holding company owned 70% by Hotel Property Limited (HPL) and 30% by Como Holdings Inc, which is ultimately controlled by Mr Ong Beng Seng, one of Singapore’s wealthiest couples with his wife, Christina Ong.

HPL is a Singapore-based company specialising in hotel ownership, management, operation, and property development and investment holding. The HPL group owns or operates 39 hotels under prominent hospitality brands in 15 countries and its portfolio of hotels under well-known brands. Four Seasons Hotels & Resorts, Hilton International, and Marriott International are among these brands.

Furthermore, HPL has a proven track record of building high-quality residential and commercial properties in domestic and international markets, including Australia, Japan, Thailand, the United Kingdom, and the United States.

Adenium Pte. Ltd (APL)

CLA Real Estate Holdings Pte Ltd (CLA), a Temasek Holdings entity, owns 100% of APL. CLA also owns 100% of CapitaLand Limited and real estate holdings in Australia and investments in the health sciences sector. It is involved in real estate development and investment, and it owns a majority position in CapitaLand Investment Limited, which is listed on the Singapore Stock Exchange.

Mapletree Fortress Pte. Ltd (MFPL)

For the purposes of this transaction, MFPL is a freshly incorporated business in Singapore. It is an indirect, wholly-owned subsidiary of Mapletree, which is also managed by Temasek Holdings and is involved in real estate development, investment, capital management, and property management. Office, retail, logistical, industrial, data centre, residential, and lodging properties are among the assets it currently owns and manages. The company oversees four Singapore-listed real estate investment trusts and six private equity real estate funds in total.

So…what is in for Cuscaden Peak?

On the surface, this partnership appears to be a mishmash of businesses that don’t gel well. However, there’s more than meets the eye.

When we examine what SPH owns and what each of these companies is doing, it starts to make more sense.

After selling its media company, SPH now owns a number of real estate properties, including shopping malls, student housing, and a private nursing home.

SPH also owns 65.4% of SPH REIT, a Singapore-based REIT that also owns shopping malls. This portfolio includes three Singapore properties: Paragon, The Clementi Mall, and The Rail Mall. In Australia, SPH REIT owns an 85% investment in Figtree Grove Shopping Centre and a 50% stake in Westfield Marion Shopping Centre.

What does Hotel Properties Ltd (HPL) stand to gain?

HPL operates three hotels in Singapore: the Hilton, Concorde, and Four Seasons, all of which are located on Orchard Road. In addition, the group owns Forum The Shopping Mall and retail units at Concorde Shopping Malls, both of which are located along the Orchard Road stretch.

All of these HPL properties are focused within Orchard, which is a recurrent theme. Given that SPH owns SPH REIT with Paragon in its portfolio, it’s only natural for HPL to seek a piece of the pie.

What does Adenium or CLA Real Estate Holdings stand to gain?

Then there’s CapitaLand, which excels in integrated development.

SPH owns The Woodleigh Residences and The Woodleigh Mall, an integrated complex. Other malls that aren’t on Orchard Road could also be of interest to CapitaLand. Clementi Mall and Seletar Mall might be lucrative acquisitions for the firm.

What does Mapletree Fortress Pte. Ltd (MFPL) stand to gain?

Finally, there’s Mapletree. MapleTree also has a substantial student housing portfolio. Given that SPH owns a portfolio of student housing, this acquisition could help boost this size. On top of that, SPH also owns data centres, which Mapletree may be able to assist with.

As you can see, this arrangement makes sense. Even though their intentions were not stated, nor will they split the asset in the future, this deal benefits all three firms.

Keppel vs Cuscaden Peak – who’ll win over SPH shareholders?

If I were a stakeholder in SPH, I would surely choose Cuscaden Peak’s proposal because it provides me with a clean exit from the company. I can then choose to reallocate my capital into another investment I want instead of being locked into odd lots of SPH REIT and KEPPEL REIT.

Nonetheless, SPH has stated in its announcement that Cuscaden Peak’s proposal is not yet a firm offer.

That is, as of the announcement, there is no binding agreement between SPH and Cuscaden Peak. Furthermore, SPH remains obligated by the terms of the implementation agreement signed with Keppel on 2 August 2021.

Switch Option: Where things could get exciting for SPH shareholders

Looking at the SPH-Keppel Joint Announcement, there is a Switch Option in the clause that specifies that if a competing offer is made, Keppel can accelerate the voting event (which was supposed to happen between October and November 2021) and seek shareholder approval for its acquisitions.

According to this agreement, Keppel must at least equal the competing offer to implement this switch option. In this instance, they must offer a price greater than S$2.10.

What could Keppel do?

We have yet to hear Keppel’s decision, but in a statement made the same day as the counteroffer, it stated that it would review Cuscaden Peak’s all-cash offer.

However, based on the available information, three scenarios could occur:

1. Implements the Switch Option and succeed

In this case, Keppel will propose a higher purchase price and seek shareholder approval. If more than 75% of the votes are in favour, the deal will be approved, and Keppel will acquire SPH. (Given that the agreement’s other terms have been met as well.)

2. Implements the Switch Option and fail

In this case, Keppel will propose a higher purchase price and seek shareholder approval. However, because the arrangement received less than 75% of the vote in favour, it will be cancelled. When this occurs, SPH will be able to negotiate a new deal with Cuscaden Peak at a later date.

3. Drop the deal

In this scenario, Keppel cancels the deal, and the contract is effectively terminated. SPH would then be able to establish a new arrangement with Cuscaden at a later date.

The Break Fee that SPH Shareholders should take note of

But that’s not all, if Keppel decides to go with option 2 or 3, SPH shareholders should be aware that under the terms of the agreement, SPH will be compelled to pay Keppel a “Break Fee” of S$34 million (about 1% of the total price) if they accept a higher competitive offer (Cuscaden Peak’s Offer in this case).

This makes the decision for SPH stockholders even more difficult. Should you choose Keppel’s deal for a higher value but get a mix of cash and stocks or Cuscaden Peak’s deal for a lower value but all cash?

Of course, at the point of publication, everything depends on Keppel’s decision. Who knows, maybe Keppel may offer SPH stockholders a better bargain.

Parting Thoughts

I had no idea Singapore stocks could be so fascinating. We’ve seen a slew of mergers and divestitures in recent months, making our stock market a little more lively.

Cuscaden Peak’s counteroffer is a positive development for SPH unitholders. With competing proposals, we can be confident that SPH shareholders will get a better price for their stock.

However, nothing is set in stone, and we must await Keppel’s decision. If you own shares in SPH, keep an eye out for it!