This year, two companies were privatised through a scheme of arrangement: RE&S Holdings 1G1 , a relatively small food company specialising in Japanese cuisine, and Isetan (Singapore). Additionally, the recently delisted Best World International completed its privatisation through a selective capital reduction.
Isetan’s scheme document said the scheme consideration represents a premium to historical trading pieces, and it provided an opportunity for shareholders to “fully exit their investment that is otherwise difficult due to the low liquidity of the shares”.
Additionally, the offeror, Isetan Mitsukoshi, says a private company will provide the offeror, which is also the parent, with operational flexibility and will save on listing costs.
The offer, made on April 1, was at $7.20, a significant premium on the undisturbed price of $2.84 and well above the book value of $2.58.
According to shareholders The Edge Singapore met, who eventually voted for the scheme, the offer price was at a discount to Isetan’s real value.
In its FY2023 annual report, Isetan announced that the valuation of its investment properties (50% of Kallang Pudding Lane and 25.77% of Wisma Atria), which are carried at cost, was $308.9 million as of Dec 31, 2023, compared to the book value of $25.8 million. The valuation of its investment properties works out as a surplus of $6.86 per share or a revalued net asset value (RNAV) per share of $9.44.
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Despite the disquiet over the offer price, on Aug 7, minority shareholders voted overwhelmingly for the scheme of arrangement. Isetan was suspended, and all its shares in the Central Depository (CDP) and CPF accounts have been acquired.
A scheme of arrangement comprises three parts. In the first stage, the company has to apply to a court of law for a meeting, which must be approved by the court. Once the court approves, notices of the scheme meeting must be sent to shareholders along with the scheme circular and proxy forms.
Stage two is the scheme meeting. For the scheme to be passed, the threshold is 50% of those present and voting in person or by proxy, representing 75% of the company’s value, must vote in favour of the scheme.
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Once the scheme meeting is voted in favour, the third stage is obtaining the court’s approval.
The offeror for RE&S is a special purpose vehicle incorporated under the laws of the Cayman Islands. Its sole shareholder is Euphoria Investments, a subsidiary of a fund advised and managed by Southern Capital Group (SCG), a Singapore-headquartered private equity firm that focuses on investments in high-growth middle-market businesses across Southeast Asia.
According to a press release by RE&S, “by leveraging Southern Capital Group’s (SCG) expertise, resources and network, the offeror aims to accelerate the company’s growth trajectory, capitalise on emerging opportunities, and strengthen its market position”.
The offeror believes that privatising the company will give the business the necessary flexibility to focus on long-term execution while helping it save costs and resources associated with maintaining its listed status.
The offer also represents an opportunity for shareholders to monetise their investment at a premium to historical prices as the offer price is at a handsome premium to the one-month, three-month, six-month and 12-month volume-weighted average price (VWAP).
RE&S’s May 19 announcement indicated that the offeror had received irrevocable undertakings from the major shareholders, giving the offeror an 84.1% stake. On July 16, RE&S received court confirmation that it could hold a scheme meeting. At this point, the scheme meeting on Aug 15 may have been just a formality.
According to the scheme document, RE&S shareholders could opt for 36 cents in cash or 33 cents in cash and “0.083143 offeror shares” for each RE&S share owned, with the cash consideration being the default.
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Operational flexibility, saving on listing costs
Both companies articulated that a private company provides opportunities. “By leveraging SCG’s expertise, resources and network, the offeror aims to accelerate the company’s growth trajectory, capitalise on emerging opportunities, and strengthen its market position. The offeror believes that the privatisation of the company will provide the business with the necessary flexibility to focus on long-term execution whilst helping it save costs and resources associated with maintaining its listed status,” RE&S’s offer document states.
Similarly, Isetan’s offer document says the privatisation provides Isetan Mitsukoshi “greater flexibility to find synergies with the offeror’s overall business strategy for its international operations and to achieve greater operational efficiencies as a wholly-owned subsidiary. Privatising the company will also bring the company in line with the offeror’s other international operations, which are all through unlisted entities.”
Interestingly, since the privatisation of Isetan was completed, a transaction involving ION Orchard valued it at more than $5,000 psf. The main difference between ION Orchard and Wisma Atria is the land lease, where ION Orchard has around 80 years of land tenure remaining compared to Wisma Atria’s 37 years.
Separately, in 2022, the attempted privatisation of Frasers Hospitality Trust ACV (FHT) via a scheme of arrangement failed because the stapled securities held by the stapled security holders voting for the scheme failed to move above 75% despite an offer price of 70 cents. FHT last traded at 45 cents on Oct 16.
Privatisations through a scheme of arrangement provide certainty for the acquirer. Other forms of certainty in privatisation involve a selective capital reduction if the company has sufficient funds. This year, Best World International was delisted via a selective capital reduction. A selective capital reduction requires the approval of at least 75% of all shares held by the shareholders present and voting at the general meeting.
Best World’s rationale for a delisting was manifold. Among them, the company said: “If the company is delisted, the company will be able to dispense with compliance costs and resources associated with maintenance of a listed status and other regulatory requirements and channel such resources towards its business operations.”
Additionally, the company expected — and has been proven correct — growth headwinds in China. “Stock market volatility and challenges in the property sector continue to weigh on consumer sentiments and cloud consumers’ outlook, leading to a heightened propensity for consumers to save rather than spend,” the company said.
According to an April announcement, economic volatility, global supply chain disruptions and changing consumer behaviour are also factors that could impact consumer demand, production and profitability for Best World’s direct selling segment.
In the nuts and bolts of the selective capital reduction, 150.15 million shares were cancelled, and the amount arising from the capitalisation and selective capital reduction was returned to shareholders. On a per-share basis, $2.56 was returned for each share held by shareholders. Best World was delisted on Oct 11.
Other forms of privatisation involve voluntary general offers (VGOs) coupled with compulsory acquisitions. VGOs, including mandatory VGOs, do not always end with a neat delisting in the way schemes of arrangement or, more rarely, selective capital reductions do. For instance, Great Eastern Holdings G07 is suspended but has not been delisted yet.
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