Earlier this morning, Asian real estate giant CapitaLand (SGX: C31) announced two key changes to its privatisation offer for CapitaMalls Asia (SGX: JS8) that was first revealed in April. What has changed in the offer? The first key change concerns the price that CapitaLand’s willing to pay for CapitaMalls Asia. In the first offer package, CapitaLand would be forking out $2.22 per share for shares of CapitaMalls Asia that it did not yet own (prior to the April takeover offer, CapitaLand had owned around 65.3% of CapitaMalls Asia). Now, CapitaLand’s bumping up its acquisition price to S$2.35…
What has changed in the offer?
The first key change concerns the price that CapitaLand’s willing to pay for CapitaMalls Asia. In the first offer package, CapitaLand would be forking out $2.22 per share for shares of CapitaMalls Asia that it did not yet own (prior to the April takeover offer, CapitaLand had owned around 65.3% of CapitaMalls Asia). Now, CapitaLand’s bumping up its acquisition price to S$2.35 per share.
The second change deals with the conditions of the privatisation offer. Initially, CapitaLand’s offer would only go through if it would end up controlling more than 90% of CapitaMalls Asia after the exercise. In other words, minority owners of CapitaMalls Asia would end up not being able to sell to CapitaLand if the condition wasn’t met. Now, CapitaLand’s doing away with the 90%-ownership condition and minority shareholders of CapitaMalls Asia with the intention to sell to CapitaLand would certainly be able to receive S$2.35 for each share they own regardless of CapitaLand’s eventual ownership stake in CapitaMalls Asia after the exercise ends.
There’s also a minor change to the privatisation offer, with the deadline now being extended from 26 May 2014 to 9 June 2014. Minority shareholders of CapitaMalls Asia who had accepted the initial offer for S$2.22 per share would also be eligible for the new offer.
So with all that out of the way, let’s look at the implications behind the deal.
What’s in it for CapitaMalls Asia’s investors?
CapitaMalls Asia is a retail mall owner with a portfolio of 105 properties scattered throughout Asia in countries that include Singapore, China, Japan, India, and Malaysia. Its real estate assets are worth a total of S$34 billion with most of the value concentrated in Singapore and China.
For CapitaMalls Asia’s investors, CapitaLand’s new offer represents an interesting conundrum. On one hand, the fact that CapitaLand is paying more could be a signal of how much more valuable CapitaMalls Asia might actually be.
After all, why would CapitaLand, given its supposed expertise in retail mall ownership and ability to evaluate real estate operations, want to pay a certain price for CapitaMalls Asia if it wasn’t getting a bargain? This could thus be interpreted as a sign that shares of CapitaMalls Asia might be worth holding on to.
On the other hand, fair points could also be made about how minority investors in CapitaMalls Asia are actually getting the longer end of the straw.
The retail mall owner had ended the first quarter of 2014 with a book value of S$1.87 per share, thus pegging CapitaLand’s takeover offer at 1.26 times CapitaMalls Asia’s book value. Book value per share – a good proxy for the intrinsic value of real estate outfits – at CapitaMalls Asia has grown by an annual compounded rate of only 7% since 2009; such a growth rate is not exactly gangbuster-type growth and paying 1.26 times book value for it might not constitute a bargain (meaning to say, it’s a deal that favours minority shareholders of CapitaMalls Asia).
There are also competitive threats to the viability of the long-term health of retail malls to consider. The growth in online retail sales, especially in China, is a serious matter to think about that can threaten the existence of retail malls. Being able to offload shares of CapitaMalls Asia right now could relieve minority shareholders of the company from having to deal with such a potential headache in the future.
All things said, it’s important to remember one thing: The proper course of action for each of CapitaMalls Asia’s minority shareholders would have to depend upon their own judgement of the corporate future of the retail mall giant.
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