Cuscaden Peak may ‘over-bid’ for SPH after Keppel ups ante: Analyst

Four of the properties in SPH REIT -- Paragon mall, Clementi Mall, The Rail Mall and Figtree Grove Shopping Centre. Image credit: SPH REITFour of the properties in SPH REIT -- Paragon mall, Clementi Mall, The Rail Mall and Figtree Grove Shopping Centre. Image credit: SPH REIT

The likelihood Cuscaden Peak will overbid to acquire SPH is “better than 50 percent” after Keppel Corp. upped the ante on its takeover offer, Travis Lundy, an analyst/Insight Provider at Quiddity Advisors, who publishes on Smartkarma, said on Wednesday.

“Cuscaden surely knew they would need to overbid their original approach. Surely they knew Keppel would bid higher given how excited they were by the terms of the deal both at the beginning and at mid-term earnings,” Lundy said in the note.

“However, the value to the consortium should be higher than the value to Keppel given Keppel’s stated long-term ROE targets. And the Temasek-backed portions of the Cuscaden consortium have the ability to take on REITs and REIT managers quite easily,” Lundy added.

In an announcement in the wee hours of Wednesday morning, Keppel Corp. sweetened its bid to acquire SPH to S$2.351 a share, in a cash-and-share offer, topping its previous bid of S$2.099 and a competing bid of S$2.10 in cash from Cuscaden Peak.

The fresh bid increased the cash component of Keppel’s offer by S$0.20 a share, to S$0.868, as well as including 0.596 Keppel REIT unit and 0.782 SPH REIT unit. Keppel noted improving stock market conditions have boosted the cumulative value of Keppel REIT’s and SPH REIT’s units since the initial offer was made. Keppel said the latest bid was its final offer.

Lundy said Keppel’s new bid is “not lepaking” — or not relaxing in Singlish — as S$2.35 is higher than the previous bid had ever traded, and is “considerably more attractive to SPH shareholders.”

But when it comes to how SPH shareholders should play the deal, Lundy advised that if a holder doesn’t expect Cuscaden to come back with an overbid, they should sell at or near S$2.35 at the market open as there’s a risk to how the REIT units will trade post-deal.

If an SPH shareholder believes Cuscaden will come back with a better offer, waiting may be a better option, as the consortium won’t need to go much higher than S$2.40 per SPH share, Lundy said. If SPH shares trade higher than S$2.38, Lundy said he would sell.

Shares of SPH last changed hands at S$2.16.

Risk to SPH REIT and Keppel REIT unit prices

Lundy cited risks to the stock component of Keppel’s bid for SPH, noting that once the SPH shareholders receive the units in SPH REIT and Keppel REIT, the potential for “flowback,” or the selling of securities received in a completed merger, could be “significantly impactful.”

In addition to SPH holders getting around 740 days of average daily volume of SPH REIT units and 127 days of average daily volume of Keppel REIT units, around 160 million to 200 million shares of SPH are held by international index funds, Lundy said.

Some of those international funds won’t be able to hold the REIT units and would need to sell them, he said, adding the major selling would likely be on units of SPH REIT.

Who is Cuscaden Peak?

The consortium bidding against Keppel, called Cuscaden Peak, includes Tiga Stars, a wholly owned subsidiary of tycoon Ong Beng Seng’s Hotel Properties, and Adenium, which is a wholly owned subsidiary of Temasek portfolio company CLA Real Estate Holdings, as well as Mapletree Investments‘ indirect wholly owned subsidiary Mapletree Fortress. Mapletree Investments is wholly owned by Singapore state-owned investment company Temasek.

Cuscaden Peak is 40 percent owned by Tiga Stars, 30 percent by Adenium and 30 percent by Mapletree Fortress. Tiga Stars is 70 percent owned by Hotel Properties, with the remainder held by Como Holdings, which is ultimately owned by Ong Beng Seng, who is the controlling shareholder of Singapore-listed Hotel Properties. Adenium is wholly owned by CLA Real Estate Holdings, which is an independently managed portfolio company of Temasek