There has been a slew of corporate restructurings and divestments in the past 12 months.
Well-known blue-chip property giant CapitaLand Limited (SGX: C31) has announced a major restructuring to spin off its investment management arm.
Other blue-chip businesses such as ComfortDelGro Corporation Limited (SGX: C52) and SIA Engineering Co Ltd (SGX: S59) are also undertaking strategic reviews.
Today’s announcement may be the biggest yet.
Keppel Corporation Limited (SGX: BN4) will be acquiring Singapore Press Holdings Ltd (SGX: T39), or SPH.
Prior to the announcement, SPH, and Keppel Corporation have also announced their respective restructurings, with the former shedding its media business and the latter splitting up its offshore and marine division.
But the latest news trumps both moves.
Source: SPH Presentation Slides
In a surprising turn of events, Keppel said that it intends to acquire SPH under a scheme of arrangement in a S$2.2 billion transaction that will accelerate the group’s Vision 2030 plans.
Please see the above diagram for the final corporate structure after the deal is approved.
This proposed acquisition is expected to be completed by December this year, subject to required approvals being obtained by shareholders of both Keppel and SPH at their respective extraordinary general meetings (EGM).
Assuming the transactions are approved. SPH will be delisted from the Singapore stock exchange.
Here are five things that investors should know about this transaction.
1. SPH shareholders enjoy an 11% premium
Keppel will offer S$0.668 per SPH share acquired, for a total cash outlay of S$1.08 billion for the conglomerate.
In addition, shareholders of SPH will receive 0.596 units of Keppel REIT (SGX: K71U), a commercial REIT with over S$8 billion worth of assets in Singapore, Australia and South Korea.
As part of the scheme of arrangement, SPH will distribute out its 45% stake in SPH REIT (SGX: SK6U) via a distribution in specie, with SPH shareholders receiving 0.782 shares in SPH REIT for every share of SPH held.
Adding the three components, the total implied consideration for SPH is, therefore, S$2.099 per share, a premium of 11.6% to the last traded price of SPH of S$1.88.
2. A slew of financial benefits
This acquisition will result in a slew of financial benefits for Keppel.
First off, it will enjoy a 6% bump in its earnings per share to S$0.175 for its fiscal 2021 first half (1H2021).
Recall that the offshore and marine giant had just announced a strong recovery for 1H2021 and had quadrupled its interim dividend to S$0.12 per share.
The growth in recurring net profit comes up to 18% and will increase from S$152 million to S$179 million.
Finally, the recurring income contribution is expected to increase from the current 51% to 56% of total profit after tax, signalling increased stability for Keppel’s earnings base.
3. Accelerating growth in Keppel’s three key focus areas
Source: Keppel Corporation’s Presentation Slides
Keppel had previously articulated its Vision 2030 goals, where macro trends such as technology, energy transition and platforms were trends that the group intends to capture opportunities in.
This acquisition will accelerate the group’s journey towards those goals in three out of four key areas.
Keppel’s asset management arm will absorb highly sought-after assets in SPH’s portfolio such as purpose-built student accommodation (PBSA), aged-care assets, and retail assets (parked under SPH REIT).
The PBSA sector, under the Capitol Students and Student Castle brands, owns 7,723 beds across 18 cities in the UK and Germany and is seeing healthy bookings for the academic year 2021/2022.
The acquisition of Woodleigh Mall and Seletar Mall will help to boost Keppel’s urban development division.
Finally, the acquisition of the remaining 40% stake in Genting Lane data centre means Keppel now fully owns this asset, thus boosting its “connectivity” goal along with a 16% stake in telecommunication provider M1.
4. Driving growth in asset management
The acquisition will also significantly enhance Keppel’s asset management arm.
Assets under management (AUM) is estimated to grow by 27% from the current S$37 billion to around S$47 billion.
In particular, Keppel’s REITs and business trust AUM is expected to grow to 57% of the enlarged AUM, providing the group with increased recurring fee-based income.
SPH REIT will also serve as a platform for the recycling of retail assets (see point five below).
In addition, Keppel will also receive a plethora of stakes in various listed companies such as a 14% stake in financial technology company iFAST Corporation Limited (SGX: AIY), a 20% stake in education provider Mindchamps Preschool Ltd (SGX: CNE) and a 6.5% stake in US commercial REIT Prime US REIT (SGX: OXMU).
5. Enhancing opportunities for capital recycling
Keppel is moving towards an asset-light model and will engage in proactive capital recycling to achieve this.
The acquired assets on its balance sheet including PBSA and the data centre represent opportunities for divestments to realise the value of these assets.
Some options may include the spinning off of assets into a separate vehicle for PBSA and senior living, while potentially injecting the data centre into Keppel DC REIT (SGX: AJBU).
A larger sponsor pipeline also means that Keppel has opportunities to sell assets into its two other REIT vehicles — Keppel Infrastructure Trust (SGX: AR7U) and Keppel Pacific Oak US REIT (SGX: CMOU) in the near future.
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Disclaimer: Royston Yang owns shares of iFAST Corporation Limited and Keppel DC REIT.