Expediting the privatisation of SPH
? SPH terminates Keppel Scheme, paving the way for a more direct privatisation process by Cuscaden.
? Keppel launches an arbitration against SPH for its purported termination of the agreement. We see minimal impact on EPS.
? We think outcome of the arbitration may not matter as companies would have moved on, pursuing goals of higher price of privatisation (SPH) and vision 2030 plans (KEP).
SPH terminates Keppel Scheme
? SPH yesterday announced that it had on Wednesday given Keppel Pegasus notice of the termination of the Keppel Implementation Agreement (KIA) with immediate effect. This follows the consultation with the Securities Industry Council (SIC) which had no objections to SPH exercising its termination right. According to the KIA, if any of the scheme conditions are not satisfied and if the Keppel Scheme has not become effective by the cut-off date of 2 Feb 2022, either party may immediately terminate the KIA.
? SPH said the reasons for exercising its termination right include i) Cuscaden’s superior scheme, ii) the removal of disparity in terms of timing and regulatory approval process between Cuscaden and Keppel’s schemes, iii) some of the conditions under the Keppel Scheme have not been satisfied by the cut-off date of 2 Feb 2022. SPH will continue with its preparations to allow shareholders to vote on the Cuscaden Scheme. Keppel filed an arbitration, disagrees with the termination
? Separately in an earlier announcement yesterday, Keppel Pegasus said it had on Wednesday filed a notice of arbitration with the Singapore International Arbitration Centre (SIAC) to commence arbitration proceedings against SPH.
? This was in response to the letter Keppel Pegasus received from SPH on 24 Jan 2022 giving written notice of its intention to consult the SIC in relation to the termination of the implementation agreement dated 2 Aug 2021 entered into between them. Keppel Pegasus does not agree with SPH’s purported attempt to terminate the Keppel Implementation Agreement and intends to seek various reliefs, including specific performance of SPH’s obligations. SPH has said that it will vigorously defend its position. Our thoughts on SPH
? The termination of the Keppel Scheme paves the way for a clearer and more straightforward privatisation and voting process for shareholders to vote on the more superior Cuscaden offer. Recall that Keppel/Cuscaden composite documents and/or the finalisation of the Independent Financial Advisor (IFA) opinion have been pending regulatory approval. Consequently, the timing and sequence for both scheme meetings cannot be determined, leading to the delay in scheme meetings.
? Our last TP for SPH of S$2.11 included a 20% discount to RNAV (S$2.64) vs. Cuscaden’s offer of S$2.36-2.40. Downside risks include privatisation falling through. Reiterate Hold.
Our thoughts on Keppel
? We have already expected its deal to take SPH private to be off since the intervention by Cuscaden in Nov 2021. We believe the earnings impact from the arbitration could be immaterial for KEP. Breakup fee of c.S$34m (4% of FY22F earnings) was supposedly to be borne by Cuscaden. However, KEP’s share price could see a very short-term kneejerk reaction, as with any negative newsflow from disputes. We note that SIC has given the go-ahead for SPH to terminate the Keppel Scheme, but the final outcome of the
arbitration lies with the administration of SIAC.
? The medium-term outlook for KEP’s asset monetisation and capital recycling into new growth sectors is not affected by the above, in our view. Reiterate Add on KEP, with SOP-based TP of S$7.20. Catalysts: faster pace of asset recycling and conclusion of proposed merger with SMM by 1Q22F. Downside risks include slower macro outlook, and unfavourable terms for the SMM merger, or the merger falling through.