Wednesday January 16, 2013
What’s billionaire Quek up to now?
Raison D'etre - Risen Jayaseelan
TWO corporate exercises in a month squarely puts Tan Sri Quek Leng Chan in the limelight. I can't recall the last time the savvy banking tycoon sought to privatise two of his listed vehicles in such a short span of time. No wonder the market is abuzz with questions as to whether the two deals are related. Or more importantly, could these deals be a precursor to an even bigger deal by Quek? For example, could Quek be readying his assets for a potential takeover bid for the valuable Bank of East Asia Ltd (BEA), Hong Kong's largest independent local bank?
For now though, all that remains is pure speculation. To recap, on Dec 12, Quek (via his vehicle GuoLine Overseas Ltd) made a takeover offer of his 75%-controlled Guoco Group Ltd at HK$88 (RM35.20) per share. Then this week, his 78%-controlled Hong Leong Financial Group Bhd (HLFG) said it wanted to buy the rest of the shares in Hong Leong Capital Bhd (HLCap) at a price of RM1.71 per share (HLFG already owns 80% of HLCap.)
Minority shareholders of both Guoco Group and HLCap will have to decide if they want to take up Quek's buyout offer.
Very interestingly, the share prices of both Guoco Group and HLCap have traded above the offer prices. Rarely does this happen. It could possibly mean that minority shareholders are betting that Quek will raise his offer price.
But why the privatisations in the first place?
Sources close to the group have said that the two privatisation deals are unrelated. There are specific reasons for both, they say. In the case of Guoco Group, the stated rationale was this: “The privatisation of Guoco Group will simplify the shareholding structure of Guoco Group and improve corporate efficiency. Full ownership of Guoco Group by Hong Leong will facilitate integration between Hong Leong and Guoco Group, and will provide Hong Leong with greater flexibility to support the future business development of Guoco Group.”
As to why take HLCap private, that also is possibly linked to them wanting to create a more efficient structure, reducing the listed financial institutions of the group from three to two. It is also believed to be in line with requirements of the soon-to-be-in-force Financial Services Act, which seeks to impose greater obligations on financial holding firms and which will help strengthen regulation, supervision and governance of financial services groups.
But is Quek offering a fair price?
Both Guoco Group and HLCap have historically traded at low prices, which analysts attribute to a lack of liquidity and interest in the stock.
Because of the low prices, Quek's cash offer for both the companies do look good on paper a 20.4% premium over the last traded price of HLCap and 24.8% over Guoco Group's last traded price. But dig deeper and you will see the problem in Guoco Group's case, its net asset per share is a whopping HK$134.32. So Quek's offer of HK$77 is a significant 34% discount to that. The offer for HLCap is a mere one sen above its book value. So, is that a fair price? But while shareholders and their advisors are busy thinking this through, the offerors of both deals could be mopping their target shares from the open market. And if and when they hit the 90% threshold a not-too-difficult feat considering they already control the bulk of these target company shares any opposition to the buyout becomes academic, as the offeror can simply compulsorily acquire the balance shares and de-list the company, which is the stated intention.
Hence, this is possibly the more plausible explanation as to why both the shares of Guoco Group and HLCap have surpassed the buyout prices.
The more fascinating scenario that may unfold is when Quek, using his Guoco Group and Hong Leong vehicles after efficiently restructuring them, makes a go for BEA. The Guoco Group already has 15% of BEA and loads more cash for any attempt for a BEA acquisition.
But so far, Quek hasn't been able buy up BEA, partly due to the institutional-led shareholding base of the Hong Kong bank. Still, with the support of the Hong Leong group, there's always the possibility that Quek's attempt for BEA could be the banking merger and acquisition story of the year.
BEA operates one of the largest networks of any foreign bank in Mainland China and that should give one a taste as to why this asset is worth a go for.