To buy or not to buy: Will shareholders bite Keppel Land’s $3b privatisation bid?

The deal might succeed, but near-term fundamentals are unattractive.

Keppel Corporation took markets by storm when it unveiled its $3b privatisation offer for Keppel Land on Friday. The move ended the suspense of a three-day trading halt which fuelled a barrage of speculation from analysts and investors alike.

Analysts have mixed views about KepCorp’s bold bid. While KepCorp maintains that the deal is positive for shareholders because it is immediately accretive to NAV, EPS and ROE, OCBC Investment Research cautions that the rich price offered for KepLand may cause some near-term weakness in KepCorp’s share price.

Meanwhile, Maybank Kim Eng analyst Yeak Chee Keong wrote in a report that synergies from the deal are not readily apparent, and that a soft property market would make it difficult for KepCorp to crystallise the benefits of a fully-controlled Keppel Land in the near term.

However, Barclays analyst Clement Chen noted that short-term pains will eventually turn into long-term gains for KepCorp.

“In an uncertain period in which the company believes other attractive opportunities are hard to come by, Keppel Corp highlighted the low-risk nature of this acquisition, given the limited execution and integration risks as KPLD’s business is a business segment that Keppel Corp understands well, and the full consolidation of KPLD should help to improve capital allocation within the group,” he stated.

Although the offer took markets by surprise, most analysts believe that the deal will succeed. Nomura analyst Min Chow Sai stated that the deal is “too cheap to ignore”, while OCBC Investment Research believes that the offer is fair and allows minority shareholders to exit at a share price above the last 36-month high.

“We think minority shareholders should accept the offer given the attractive valuations. Although KepCorp has no intention to revise its offer price, we think the chance of this privatisation succeeding is high. In addition, the 5% offer price gap between S$4.38 and S$4.60 provides another incentive to reach a total 90% acceptance level, thus triggering a mandatory compulsory acquisition and delisting action,” added CIMB analyst Lock Mun Yee.