Keppel T&T’s privatisation. Here’s what you need to know

Keppel Corp recently announced its Keppel T& T privatization plans offering$1.91 cash per share. The conglomerate with diversified interests in business stated that the privatization of Keppel Telecommunications & Transportation will give its shareholders a chance to decide what to do with their investment in the company.

The company is offering an attractive premium of approximately 40% over the one-month volume of Keppel’s $1.365 weighted average price. The media release from the company stated that the recently declared scheme is in tune with the strategy of Keppel Corporation that it follows for simplifying the corporate structure of its group. The intention is to align the interests of Keppel T&T in a better way with the entire group and improve capital allocation.

Apart from the privatization offer, the company will also pre-conditionally make an S$2.06 cash/share voluntary general offer for the shares of M1 that it does not own. Keppel is making this M1 offer along with Singapore Press Holdings (SPH) which is one of the Singapore’s largest mobile operator with a value of around S$1.91 billion.

 

Keppel to make an offer through joint venture

As per reports, Keppel will launch the Keppel T&T’s privatization offer as a joint venture with a company Konnectivity Pte Ltd. Incidentally, Keppel owns a majority of sake in this company. Simultaneously, SPH will pour in 13.45% M1 stakes into the joint venture and in exchange will receive a minimum stake of 20% in the latter stage. SPH is also planning to pump in an additional investment of S$51.3 million cash in the Konnectivity Company to fund the venture partially.

Level of acceptances will decide the amount of investment by both the companies. Eventually, the interest of Keppel Corp in Konnectivity may range in between 56.16% to 80% whereas the interest of SPH may range in between 20% to 43.84%. It also indicates that the stake of SPH at the latter stage may increase up to 16.13%.

 

Will Axiata accept the offer?

Incidentally, the Keppel Corp and Singapore Press Holdings made an offer to Axiata Group of Malaysia to acquire M1. However, the largest shareholder in the listed market of Singapore will most probably reject the offer. The Malaysian company thinks that the offer is inadequate and opportunistic. But even if Axiata rejects this offer, Keppel and SPH will go ahead with the deal as the company will take another 18% from the share market and gain 51%.

Rumors are adrift that Keppel is planning to buy a Telco to transform the digital operations of M1. CGS-CIMB analyst Lim Siew Khee said, “We trust that management has a game plan in mind and not merely buying a telco. Without transformation, M1 will remain a non-core investment.”

 

Keppel T&T’s privatization is a strategic initiative to gain hold of M1

The press release from the company says that this offer is a part of the strategic initiative for gaining most of the control of M1. Keppel wants to introduce business transformation initiatives in the company. These include digitalization of the operating platform of the company, optimization of the sheet to fare better in competition, and balance cost management.

At present Keppel Corporation owns 19.3% of M1 as its subsidiary Keppel T&T owns 79.2% stake in the company. SPH owns 13.45% M1. The offer from Keppel is not applicable to Keppel T & T as it is the subsidiary of Keppel Corporation. According to the chief executive officer of KepCorp, Loh Chin Hua, the offer from the corporation for M1 is in tune with the mission of the group. Keppel’s primary goal is to serve as a solutions provider for bringing sustainable urbanization.

Hua stated, “Keppel Corporation has increasingly been transforming its traditional B-to-B business to include retail customers in gas, electricity and urban logistics. Incorporating M1’s capabilities and two million customers in a combined digital platform would provide opportunities for synergies and cross selling of services.”

 

M1 transformation process to take long years to complete

The overall transformation of M1 will take long years as the undertaking process is quite complex. That is why Keppel planned to come up with this offer for its shareholders. Those M1 investors who are not ready to wait or bear the risks related to the transformation process have the option to realize their investment upfront.

The share prices of M1 reached a high in the March of 2015. However, ever since then the value of M1’s shares continued to plummet nearly by 60% especially after the increasing threats of telco started challenging the congested mobile space of Singapore. Owing to this situation, it is quite possible that the investors might get into a dilemma. They will start thinking whether to continue with the investment in Keppel or realize their stake post Keppel T&T’s privatization declaration.

The company definitely understands this state of the investors which is why it gave the option to its shareholders of realizing their investment upfront.

 

Keppel T&T’s privatization to require more than 50% shareholders’ approval

The privatization scheme from Keppel will require approval from more than 50% of shareholders of Keppel T&T and representing 75% value of the total shares of Keppel T&T. The shareholders can vote in person or by proxy during the scheme meeting. Keppel is planning to organize the meeting in FQ of 2019.

Approval from the High Court of Singapore is also going to be the deciding factor for the success of the scheme. During the entire process, Keppel Corp will have to refrain from voting. The current $1.91/share offer from Keppel is 40% more than the price at which the shares of the company last traded.

 

Media and property group supporting Keppel’s offer

The chief executive officer of SPH, Ng Yat Chung stated that the property group and media both are in favor of Keppel’s offer. They think that the offer can create a long-term value for M1. Since the transaction is adding earnings/ share for the shareholders of SPH, it is in line with the regular strategy of SPH to consistently keep on enhancing value for its shareholders. Ng further added that his company thinks that SPH can get the opportunity to leverage on the mobile platform of M1. It can take this chance to provide ready and on-demand digital content and serve its customers better.

So, even though Axiata may reject the Keppel T&T’s privatization offer, both Keppel Corp and SPH will take it further and pull it off for sure.

(By Neha Gupta)

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