Published January 15, 2009

Gokongwei factor lurks as UOL bids for UIC

Filipino tycoon's stance may influence fate of takeover offer

By UMA SHANKARI

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(SINGAPORE) Wee Cho Yaw's UOL Group has made a $1.15 billion offer for all shares it does not own in United Industrial Corp (UIC).

Major players: Mr Wee (left) and Mr Gokongwei

The offer - for $1.20 a share - values UIC at around $1.65 billion. UOL might also make an offer for UIC-controlled Singapore Land in the future, it said.

UOL made the mandatory cash offer after the stake in UIC held by the group and its related parties crossed the 30 per cent mark to 30.2 per cent. The offer price is 9.1 per cent higher than UIC's last transacted price of $1.10 per share on Tuesday, Jan 13 - but some 51.6 per cent lower than UIC's net asset value per share of $2.48 as at Sept 30, 2008.

The offer is conditional upon the offerer and parties acting in concert with it holding more than 50 per cent of voting rights in UIC at the offer's close.

UOL's offer for UIC may also lead to a mandatory takeover offer for SingLand if UOL gains control of more than 50 per cent of UIC. UIC owns about 72 per cent of SingLand. If that happens, UOL will make an offer of $3.57 for each SingLand share, it said.

The offer price is based on the simple average of the daily volume weighted average traded prices of SingLand shares for the latest 20 trading days prior to yesterday's announcement.

UOL's takeover bid comes about three years after Filipino tycoon John Gokongwei made a takeover offer for UIC after his shareholding in the company crossed the 30 per cent mark. The October 2005 bid failed, but Mr Gokongwei now holds a deemed stake of 35.1 per cent in UIC and his JG Summit Holdings is the single largest individual shareholder in the company.

UOL said that the offer represents an opportunity to 'better align the strategic objectives' of UIC and UOL. UOL and UIC have joint investments in retail commercial and hotel projects. In addition, the two companies are jointly developing residential projects in Singapore. Said UOL: 'If UOL is able to obtain a majority shareholding in UIC, the UOL Group will be able to streamline the interests of both groups in these co-investments.'

JG Summit , which is listed on the Philippine Stock Exchange, has declined to comment on UOL's bid. BT understands that the company has yet to evaluate the offer and the implications to its overseas expansion plans.

JG Summit is also cash rich. As at September 30, 2008, JG Summit had cash and cash equivalents of 7.9 billion Philippine pesos (S$247.5 million). In addition, there have been no signs that the company is looking to dispose of its shareholdings, either in the Philippines or abroad. Instead, JG Summit is in the market for fresh acquisitions and new business ventures, BT understands.

Analysts said that JG Summit and other shareholders are unlikely to sell their stakes in UIC as the offer price is not attractive enough.

Insider buying of UIC by Mr Gokongwei and other major shareholders has been very consistent throughout the last two years, said CIMB analyst Donald Chua. 'We do not expect them to sell their stakes at these valuations.'

Long-term shareholders, he said, might be better off holding onto their shares and waiting for the next property upcycle.

JPMorgan analyst Christopher Gee similarly noted that the last takeover of a major property company in Singapore - CapitaLand's bid for Ascott Group in January 2008 - was done at a premium of 43 per cent to the last traded price.

CapitaLand succeeded in taking Ascott private. While market conditions then were quite different compared to today, early 2008 was not at the peak of the property upcycle either, said Mr Gee.

Analysts here said that Mr Gokongwei is unlikely to make a counter-offer for UIC as not many shareholders are likely to sell their shares to UOL - which means that Mr Gokongwei has no incentive to make a counter-bid to prevent UOL from gaining control of UIC. But as one analyst put it: 'All this is just speculation at this point.'

And while UOL might not be able to get a large chunk of UIC shares with its offer, it could increase its stake in UIC and SingLand at a good price if some shareholders choose to exit their investments in the midst of a property downturn.

UIC also suffers from poor liquidity as more than 65 per cent of its stock is held by UOL and Mr Gokongwei. The trading liquidity of UIC shares has been low, with an average daily trading volume of about 580,000 shares over the last 12 months - which represents just 0.04 per cent of the total issued shares.

All three stocks - UOL, UIC and SingLand - were suspended from trading yesterday. Trading resumes today.