Bloomberg / Singapore
Stocks linked to Jardine Matheson Holdings Ltd, Singapore’s biggest conglomerate by market value, rallied after saying it will delist the group’s second-largest unit in a $5.5bn buyout to simplify its structure.
Jardine Matheson, whose businesses range from automobiles and hotels to supermarkets, surged 15% after it said in a filing that it will acquire shares that it doesn’t already own in Jardine Strategic Holdings Ltd for $33 in cash per share. Shares in the latter jumped as much 37%, the most on record before closing 19% higher. Both were among the top gainers in Asia Pacific and contributed the most in the Straits Times Index’s 1.9% surge.
The deal, coming in the wake of the global pandemic, marks a significant effort to untangle the structure of an almost two-centuries old company, one of Hong Kong’s last remaining British trading houses. The Jardine group, the inspiration for James Clavell’s novel Noble House, moved its Hong Kong listing to Singapore in the early 1990s, a few years before Britain returned the city to China.
On completion, Jardine Matheson will become the single holding company for its subsidiaries, a move the group said will result in a “conventional ownership structure and a further increase in the group’s operational efficiency and financial flexibility.” The deal is expected to become effective by the end of April.
The origins of the current structure, in the form of cross-holdings in dual holding companies and majority interests in listed subsidiaries, lie in a series of restructuring in the 1980s, the company said.
The group was founded in 1832 in Canton as a tea and opium trader. It eventually became one of the “hongs,” or trading houses, that shaped Hong Kong’s development. After moving its stock listing to Singapore, the group shifted focus toward Southeast Asia, where it now runs restaurants, hotels, and Mercedes-Benz dealerships.
“Taking full ownership of Jardine Strategic is consistent with our policy of investing further in the growth prospects of our existing businesses,” Ben Keswick, executive chairman of the group said in the statement. The deal “also highlights the benefits of consistently maintaining the Group’s financial strength,” he added.
Fair price? While the deal is proposed to be executed at a 20% premium to Friday’s closing price of Jardine Strategic, it is still a 19% discount to the value of its listed assets, according to United First Partners, a company that specialises in advising on special situations in equity markets. “Shareholders can dissent for a fair price,” said UFP’s Head of Asian Research Justin Tang.
Some have already started raising that point. Patrick Millecam, a founding partner of Belgian boutique asset manager Value Square NV, said he “cannot be very enthusiastic” about the deal.
“Although we can grasp a nice short term gain, we are deprived as long term shareholders of the future profits of the Jardine group,” said Millecam whose company holds at least 396,510 shares of Jardine Strategic as of yesterday’s close. Jardine Strategic was already quoting at a higher than average discount to its value so the price of $33 per share “does not really include a takeover premium,” he said.
A simplification of corporate structure can also “create a virtuous cycle” and see some of the group’s other stocks rallying, which will further raise the fair value of Jardine Strategic, United First’s Tang said.
The group’s other units in the Straits Times Index also rose. Jardine Cycle & Carriage Ltd gained 4.2% and Hongkong Land Holdings Ltd rose 1.2%. Dairy Farm International Holdings Ltd jumped 8%.
Potential replacement: The delisting of Jardine Strategic also means that Singapore’s national equity gauge will have to get a new member in its place. Frasers Logistics & Commercial Trust is the most likely stock to replace Jardine Strategic, Brian Freitas, a New Zealand based analyst at Smartkarma wrote in a note.
Following the acquisition, Jardine Matheson will consolidate all of Jardine Strategic’s profits as a wholly-owned subsidiary. On a pro forma basis, this would have resulted in Jardine Matheson’s 2020 underlying net profit increasing by approximately $83mn, the company said in the statement.
JP Morgan Securities Plc, Simon Robertson Associates LLP and Hongkong and Shanghai Banking Corp acted as the financial advisers to Jardine Matheson for the deal.
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