SPH & Keppel make a general offer for M1. This is what investors need to know.

Singapore Press Holdings and Keppel Corp are reportedly planning to acquire the remaining stake in M1 Ltd, the smallest wireless in Singapore in order to have controlling interest.

Keppel and SPH each have stake in M1 and they have joined efforts in pursuit of the telecommunication company’s remaining stake in a deal valued at $1.27billion. The two firms released separate media statements on Thursday, in which they revealed plans to use a separate division of Konnectivitymajority held by KCL to make a general and pre-conditionally general offer to M1.

SPH and Keppel will offer to buy the stock in a cash deal at $2 for each M1 share which means the deal will be offered at a 26 percent premium subject to the stock’s last closing stock. KCL revealed that the offer will not involve Keppel Telecommunications and Transportation since it is related. Reuters revealed that KCL currently holds 19.7 percent stake in M1 through Keppel while SPH controls 13.45 percent stake in the wireless firm. The two companies together with their associated parties, therefore, own 33.27 percent stake in M1.

 

Here is what Keppel and SPH plan to do when they secure controlling interest

SPH revealed that it plans to contribute S$51.3 million in the offer and this means that its stake in M1 could go up to 16.3 but only if the offer is accepted. The two companies have joined efforts to acquire majority stake in M1 so that they can enforce some business changes. Those changes will put M1 in a more competitive position in the telecommunications market.

“If Keppel and SPH do make a move for M1, it is primarily due to the value that the telco offers because of its share-price weakness,”stated Fitch Solutions analyst Kenny Liew.

Liew also noted that M1 still maintains decent and stable profit levels despite dipping revenues. Its market value ranges aroundS$1.1 billion after tanking by 59 percent since 2015 and analyst estimates suggest that it might drop by 1.5 percent this year.It manages to stay afloat due to its capital efficiency and this is also one of the reasons it is so appealing to SPH and Keppel. The offer by the two companies is currently pending approval by the Info-communications Media Development Authority.

SPH’s CEO Ng Yat Chung stated that his company supports Keppel in the offer and also added that M1 has a lot of potential for value creation over the long-term. This value creation will be generated from the business transformation and growth initiatives undertaken after the offer is closed. The SPH CEO also believes that Keppel is the ideal partner to take M1 to the next level given that it has already shown a high level of commitment towards the cause.

Oversea-Chinese Banking Corp analystJoseph Ng believes that M1 could benefit greatly from a better decision-making process if its ownership is simplified. It is not clear whether this will be a point of interest for Keppel and SPH if they acquire majority stake.

 

The offer might also allow the companies to take advantage of M1’s mobile platform

Ng Yat Chung also claims that the majority stake joint initiative between Keppel and SPH might provide an opportunity for his company to use M1’s mobile platform to provide its clients with digital and on-demand content. The SPH CEO claims that the move will allow it them to provide better service to clients. SPH is thus ready to offer its expertise and resources towards the cause, given considering the advantages to be had.

The two companies have a lot riding on their offer to purchase the remaining stake in M1 Judging by Ng Yat Chung’s statement. These advantages will be set in motion once the offer is approved.

 

What the offer means for investors

SPH and Keppel’s joint offer for controlling interest in M1 is not only a big deal for the companies involved but also for their investors especially from a value point of view. Since SPH and Keppel’s acquisition of the remaining M1 stake is expected to be accretive to performance in the future, investors are expected to experience the benefits. However, M1 representative Ivan Limstated that the company could not reveal any plans pertaining to investors.

If Keppel and HSP go along with their plan for M1 and end up succeeding, there is a chance that the whole financial maneuver might result in better performance in and thus more profits. Perhaps this is the break that M1 needs to reverse the direction of the declining profits.

This is not the first time that the three companies are involved in an M1 shareholding matter. SPH, Keppel, and Axiata considered a strategic review of their stake in M1 in July last year. However, the companies ended up calling it off and the result of this action was an underwhelming offer from any external parties.

M1’s largest shareholder Axiata announced on Wednesday that it is reviewing its stake in the telecommunications firm. It also revealed that it is in talks to select a financial institution and advisor that will review the company’s available options. Axiata’s goal is to aggressively uphold investor protection while also generating value not only for itself but also to generate value for M1. Axiata’s shares experienced their biggest gain since August due to the surge that took place during Wednesday’s trading session in Kuala Lumpur.

As for the trading situation, Keppel T&T and M1 stock trading was halted since Monday prior to the announcement. SPH’s shares dropped by 1.4 percent in Singapore while Keppel shares surged by 0.6 percent. Singapore Telecommunications shares had a 0.3 percent decline while StarHub dropped by 0.6 percent.

A long-term review shows that M1 stock has tanked by almost 10 percent over the past one year. This means that the stock performance has a direct correlation with the company’s declining profits. Its shares have also dropped by 59 percent in total from their S$3.99 all-time-high stock price in February 2015 to about S$1.63 recorded on Monday.

(By Neha Gupta)

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