Published September 29, 2008

The bear pulls in privatisation deals

More listed firms taken private in the past few months

By OH BOON PING
Email this article
Print article
Feedback

PRIVATISATION activity appears to be on the rise in recent months, following the recent stock market slump amid a deepening credit crisis.

This month, King's Safetywear, which manufactures and markets industrial safety footwear, said that it had received a cash offer of 43.8 cents per share from Safe Step Group with a view to delisting the company, while key management members of SP Chemicals offered cash of 73 cents a share for all the shares they do not own, to take it private.

Likewise, SingTel recently bought a 60 per cent stake in mainboard-listed Singapore Computer Systems (SCS) for $140 million, and will be making a general takeover offer for the remaining SCS shares with an eye to delisting SCS eventually.

Besides these, there are at least five other acquisition bids made in the past few months, even though not all the targets will be delisted.

For example, Baida Finance (Group) Company, which is involved in project investing and financing, is taking a 11.1 per cent stake in E3 Holdings - making it the single largest shareholder - but there are no plans to raise its stake further to delist E3 at the moment.

The spate of merger and acquisition (M&A) deals came in the last few months when stock market sentiment took a hit over the worsening global credit crunch.

On Friday, the Straits Times Index (STI) closed at 2,411.46, down 32.78 points, as the global financial crisis deepens.

Said George Lee, head of OCBC's investment banking: 'The current increase in privatisation takeovers is driven by low valuation of many listed companies.'

'Many are trading at discount to net tangible asset or very low price-earnings multiple of 3-4 times. At such valuation, it makes little sense to remain listed with its cost associated with listing and governance,' said Mr Lee, who believes the trend is likely to continue.

Indeed, as concerns grow over the financial markets, investors looking to offload their stakes now have a greater incentive to accept any attractive general offer.

Robson Lee, partner at law firm Shook Lin & Bok LLP, told BT that 'shareholders typically buy on hope, hold in greed and sell in fear. Valuations for good companies are likely to be adversely affected by the current downturn and the global credit crunch.

'A cash offer for shares in an uncertain economic environment, where credit is scarce and cash is king, is likely to be successful, as investors scramble to consolidate their cash positions.'

Moreover, he pointed out, investors are unsure if there will be a protracted bear market and this uncertainty is pulling sentiment down.

'The US Congress is taking its time to approve the US$700 billion financial rescue plan proposed by Henry Paulson, Ben Bernanke and Christopher Cox. And the continual political wrangling within an election-mired Congress has adversely affected market sentiment in recent weeks.'

The other M&A bids that were made here in the past few months include Unisteel Technology's takeover offer from Kohlberg Kravis Roberts and Co, Dimension Data's buyout of Datacraft Asia, and Khazanah Nasional's additional 16.41 per cent interest in Parkway Holdings.