UOL offer not fair

Current situation provides company with cheaper way of exploiting synergies

DID United Overseas Land (UOL) really “fail” in its attempt to take over United Industrial Corporation (UIC)? Most market observers suspect that UOL was never really that serious with its general offer to buy over shares it did not already own.

Instead, they felt the offer was more of a technical one. After all, it was mandatory for UOL and its related companies to make a bid once they collectively crossed the30-per-cent ownership mark.

UOL, the property arm of banker Wee Cho Yaw, offered $1.20 a share but narrowly missed the mark by garnering only 48.94 per cent of voting rights. Its $1.15-billion offer was conditional on getting 50 per cent of UIC voting rights.

Market analysts said UOL’s offer was perhaps as serious as the one made three years ago by UIC’s largest shareholder, Filipino tycoon John Gokongwei, when he also breached the takeover trigger point and made an offer at $1.09 a share.

They felt that UOL, through its takeover vehicle UOL Equity Investments (UEI), had deliberately priced its offer low so that most investors would reject it. That was just a tad higher than the then prevailing market price in mid-January. It was also less than half of UIC’s net asset value of $2.48 a share as at the end of last September.

Indeed, UIC’s independent financial adviser ING Bank had described UOL’s offer as “not fair”, suggesting to shareholders holding a long-term view about the company‚s prospects to reject the overture.

In fact, UOL could not have asked for a better outcome than the one they had at the close of the offer on Tuesday.

UOL is now UIC’s largest shareholder with a 45.6-per-cent stake, having bought 12 per cent from Morgan Stanley Investment Management and the rest in the open market. This means it has overtaken Mr Gokongwei’s 35.3-per-cent shareholding.

As a result, UOL not only has board control of UIC but also better control, needing to attract only a small number of minority shareholders to get special resolutions passed.

And within three years, UIC could become a subsidiary of UOL as the latter is able to purchase up to 2 per cent of the former annually without having to make a mandatory offer for the remaining UIC shares.

Similarly, Mr Gokongwei could raise his stake through open market purchases, but UOL now has a 15 percentage point advantage.

In addition, UOL does not have to make an offer for the remainder of the shares of mainboard-listed Singapore Land in which UIC has a 72.4-per-cent stake. This saves UOL almost another $1 billion more at a time when cash is scarce and credit tight.

For UOL, the current situation provides it with a cheaper way of exploiting the synergies existing between the two property giants. For instance, each of the two companies had a real estate project in Tianjin, China.

“Getting together and complementing each other will save us substantial costs on the two developments,” said a UOL source.

Source : Today – 5 Mar 2009

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