An Improved And Final Offer
SMG received a revised general offer of S$0.40/share (up from S$0.37/share) from TLW on 2 Nov 22. We recommend shareholders to accept the offer, given that it: a) falls within the fair value range of S$0.39-0.46 of the IFA; b) represents a premium to the VWAPs, exceeding all closing prices in the past 15 months; and c) is close to our last target price of S$0.45 (14x 2022F EPS). If the offer fails, SMG’s share price could trend downwards significantly. The offer closing date is 15 Nov 22.
• Revised voluntary conditional offer of S$0.40/share from TLW. In Sep 22, TLW Success (TLW) made a voluntary conditional general offer to privatise the company at S$0.37/share (cash consideration) or a 1-for-1 new share in the offeror (share consideration). This was later revised to S$0.40/share in Nov 22. TLW is equally-owned by SMG’s Non-Executive Chairman Mr Tony Tan Choon Keat, Executive Director and Chief Executive Officer Dr Beng Teck Liang and Executive Director Dr Wong Seng Weng. As of 1 Nov 22, TLW and concert parties have secured 77.37% of the total number of issued shares. The offer is conditional upon TLW and concert parties holding more than 90% of the total number of shares at the close of the offer (acceptance condition). The offeror, TLW, has also indicated that it does not intend to revise the offer price, but reserves the right to do so in a competitive situation.
• IFA concluded that the original offer was reasonable, advised to accept the offer. The independent financial adviser (IFA) for the independent directors of SMG, ZICO Capital (ZICO), had released its report on the first general offer by TLW in Oct 22. According to ZICO, the S$0.37/share initial offer from TLW was reasonable based on: a) the premiums of approximately 5.7% and 289.5% to the NAV/share and NTA/share respectively, as at 30 Jun 22, and b) the premiums of 18%, 19%, 16% and 18% over the volume-weighted average price (VWAP) per share for the 1-month, 3-month, 6-month and 12-month periods respectively. With the revised offer of S$0.40/share being 8.1% higher than the initial offer price of S$0.37/share, premiums over the VWAP/share have risen to 28%, 29%, 26% and 28% for the 1-month, 3-month, 6-month and 12-month periods respectively. In addition, the revised offer now falls within the IFA’s estimated fair value range of S$0.39-0.46.
• Potential negative impact upon lapse of offer. Minority shareholders should note that the offer is conditional. In the event the offer from TLW fails and no competing offer emerges, the share price of SMG could trend downwards significantly. As an indication, the revised offer price of S$0.40/share exceeds all previous daily closing prices of SMG in the last 15 months. Investors should also note the closing date of the offer is 15 Nov 22. Our analysis indicates that there are a number of instances whereby conditional offers not meeting the acceptance criteria led to sharp declines in the share price of between 0-36% three months after the offers lapsed, such as the most recent example of Frasers Hospitality Trust. We highlight instances of failed conditional general offers and their impact on the share price.