Oversea-Chinese Banking Corporation (OCBC) has issued a response to the letter sent by the Securities Investors Association Singapore (SIAS) on June 21.
In its letter, SIAS posed six questions pertaining to OCBC’s decision to stick to its original offer price of $25.60 per Great Eastern (GEH) share, key factors that led to the offer price, and more.
In its response dated June 27, OCBC explains that it already considered the “methodology, analysis and opinion” of its independent financial adviser (IFA), EY, before making the offer.
“We note the IFA, following the detailed analysis it has undertaken, had considered the traded multiples of comparable companies across various metrics, versus the multiples implied by our offer,” said the bank, adding that its offer price represented a 36.9% premium to GEH’s last-traded price the day before its privatisation announcement on May 10.
The letter, dated June 27, comes after GEH’s free float fell below the regulatory 10% on June 24.
“We further note that the IFA has opined that the offer is not fair but reasonable and has advised the independent GEH directors to recommend that GEH shareholders accept our offer and the independent GEH directors have concurred with the IFA’s recommendation,” continues the release.
On June 14, EY noted that the offer was “not fair but reasonable” but advised GEH’s independent directors to accept the offer.
When asked about its justification for the “unfair” offer, OCBC replied that the offer price is at a premium to both historic volume weighted average price and net asset value. Based on the undisturbed price of GEH on May 9, the offer price of $25.60 represents a premium of the one-month (38.6%), three-month (40.0%), six-month (41.9%) and 12-month (42.4%) volume weighted average price (VWAP), and translates to a P/BV of 1.54 times, P/E of 15.6 times P/embedded value of 0.70 times, OCBC points out.
In its announcement, the banking group added that it enjoyed a “strong synergistic relationship” with GEH with the latter significantly contributing to the bank’s performance while the bank gave the insurer access to its “extensive retail and commercial customer base”.
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“This access has been valuable as one of the drivers of GEH’s growth and profitability,” OCBC explains.
“We would request all GEH shareholders to review the IFA analysis holistically and carefully review the considerations the IFA has articulated as the basis for its recommendation to the independent GEH directors,” OCBC adds.
Further to its statement, OCBC states that its intention to increase its investment in GEH is “not new” having first made an offer in 2004 and again in 2006.
“On May 10, we articulated in the offer announcement our intention again to increase our investment with a view to seek a delisting,” the bank stressed.
However, it noted that it will only seek a delisting of GEH if the “conditions are acceptable and in the interests of OCBC and its shareholders”.
“As such, we have to be prudent and calibrated in our approach, while striking a balance between cost and returns,” it adds.
On the offer, the bank said that the issue will not be a “permanent distraction” and that it remains “committed and focused on [its] corporate strategy to deliver long-term value to [its] stakeholders”.
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As at June 26, GEH received acceptances for some 6.8 million shares and acquired 1.8 million shares through market purchases. OCBC’s stake in GEH is now 90.24% - or 427.1 million - of the total number of issued GEH shares.
GEH will be announcing its financial results for the 1HFY2024 ended June 30 by July 31.
Shares in OCBC closed 11 cents higher or 0.76% up at $14.51 while shares in GEH closed 1 cent lower or 0.04% down at $25.64 on June 27.
