Yanlord's UEL takeover at risk of tepid shareholder response

The offer price of $2.60 apiece is lower than the latter’s closing price of $2.62.

The acceptance rate for Yanlord’s proposed acquisition of United Engineers Ltd’s (UEL) shares “would be low,'' as Perennial UW and Heng Yue had expressed intentions to dispose their stakes in UEL, according to an analyst report by OCBC Investment Research (OIR).

Yanlord’s offer price of $2.60 apiece appeared slightly below UEL’s closing price of $2.62 on 25 October. The price is also at a 16.7% discount to UEL’s NAV/share (as at 30 June 2019), implying a takeover offer at 0.83x PB.

“This cash offer is conditional upon Yanlord garnering valid acceptances that will result in it holding more than 50% of the total voting rights attributable to the UEL ordinary shares,” OIR stated.

Yanlord had entered into separate sales and purchase agreements with Perennial UW and Heng Yue to acquire their respective 45% and 6% stakes in the entity, which holds 35.27% in UEL. The deals amounted to $229.7m, and was funded by a combination of internal resources and debt.

Also read: Perennial unit sold 45% stake in YIS to Yanlord Commercial for $202.68m

“It is therefore required to make a mandatory general offer for all of UEL ordinary shares it does not hold and also a comparable offer for UEL preference shares to be compliant with the Singapore Code on Take-Overs and Mergers,” OIR added.

It also noted that Yanlord is looking to broaden its exposure in Singapore after its entry in 2018 and that UEL has a presence in both SIngapore and China markets, which contributes 51.2% and 18.2% of UEL’s revenue in FY18, respectively.

In addition, Yanlord is also expected to benefit from the improved sentiment within the Chinese property market. The firm is said to have a strong exposure to key economic regions in PRC such as the Yangtze River Delta, Bohai Rim and Greater Bay Area.