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Who is superior?

■   We think SPH shareholders are likely to go for Cuscaden’s revised scheme of full cash S$2.360/share or part share/cash offer of S$2.40/share.  
■   We believe KEP is unlikely to counter with a higher offer and may look for other assets. Next catalyst: divestment of KEP’s O&M business.  
■   If Cuscaden succeeds, KREIT’s price overhang will be removed while SPH REIT’s price may be capped at chain offer price of S$0.964 in the near term.

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Cuscaden’s competing offer of S$2.36 to S$2.40 per share for SPH
Responding to the final revised unsolicited offer by Keppel Corp (KEP) on 10 Nov, Cuscaden has raised its offer to S$2.36-S$2.40 per share (vs. all-cash S$2.10 per share previously) and entered into an implementation agreement with SPH. Cuscaden’s offer came with optionality where each shareholder could choose to get (i) S$1.602 cash per share and 0.782 SPH REIT units (valued at S$0.798 per share) which translates into a total consideration of S$2.40 per share or (ii) an all cash offer of S$2.36 per share. At c.S$2.40 per share, the offer values SPH at S$3.9bn or 1.1x P/NAV which is a superior offer to KEP’s revised scheme consideration of S$2.351 per share (S$0.868 cash, 0.596 units in KREIT and 0.782 units in SPH REIT). Cuscaden’s scheme consideration will not be adjusted for SPH’s FY21 final dividend of S$0.03 per share or any break fee payable to Keppel. SPH’s Independent Directors preliminarily recommend the shareholders to (i) vote against Keppel’s scheme at the scheme meeting which will be held by 8 Dec 2021 (if there is no delay) and (ii) vote in favour of Cuscaden’s scheme (to be held in Jan 2022, Fig 1) which will only be held if Keppel’s scheme is voted down. Cuscaden has submitted all regulatory applications and unlike KEP’s scheme, Cuscaden’s scheme does not require the approval of Cuscaden’s shareholders. If Cuscaden’s scheme is approved, it may need to make a mandatory general offer for SPH REIT if <80% of SPH shareholders choose cash plus units offer. Cuscaden’s eventual stake in SPH REIT is also dependent on what SPH’s shareholders choose (Figs 2 and 3). The default option is cash plus units consideration. SPH can still accept competing offers prior to the shareholder meeting for Cuscaden’s offer.

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What should SPH’s shareholders do?
As compared to KEP’s offer, Cuscaden’s offer not only provides higher total consideration value and value certainty, it also provides optionality to shareholders to participate in the potential future growth of SPH REIT (Fig 4). Cuscaden’s all-cash offer/cash plus units offer of S$2.36/S$2.40 per share represents a 1.3%/3% premium to SPH’s last closing price of S$2.33. Considering these, we think SPH’s shareholders will likely favour Cuscaden’s offer.  For investors who favour Cuscaden’s offer should (i) first step – vote against KEP’s offer during the Keppel scheme meeting (by 8 Dec if there is no delay) and (ii) second step – vote in favourof Cuscaden’s offer at the Cuscaden scheme meeting in Jan 2022, assuming there is no more competing offer. Investors who favourKEP’s offer should vote in favourof KEP’s scheme at the meeting which will be held by 8 Dec 2021 if there is no delay.

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What’s next for KEP?
KEP’s scheme offer of S$2.351 was final. Although KEP is still able to counter Cuscaden’s offer with a general offer, we think the latter option is unlikely. KEP’s proposed scheme is valid until 8 Dec if there is no delay. With this deal likely to be off for KEP, the group may have to look harder to find similar assets that yield recurring income. Its asset monetisation plan of S$5bn by 2023 is unaffected. The next catalyst investors should look out for is the divestment of KEP’s offshore & marine business, sometime in Dec 21 to Feb 22. In the near term. KEP’s share price could move sideways.


Positive for KREIT and negative for SPH REIT in the near term
If Cuscaden succeeds, the price overhang on KREIT will be removed while SPH REIT’s price would be capped at the mandatory offer price of S$0.964 by Cuscaden in the near term. However, the potential higher free-float and merger between SPH REIT and any of the REITs (MCT/CICT) under Cuscaden would serve as a re-rating catalyst for SPH REIT.