What’s Next For Keppel Corporation Limited After Its Successful Takeover Of Keppel Land Ltd?

Keppel Corporation Limited (SGX: BN4) announced yesterday evening that it has closed its offer to buy up shares of Keppel Land Ltd (SGX: K17). This follows Keppel Corp’s January announcement of its intention to take Keppel Land private.

As of 31 March 2015, Keppel Corp owns 95.1% of Keppel Land. That means that the privatisation price for Keppel Land will be set at S$4.38 per share.

Keppel Corp’s takeover offer had two price levels. The company had offered to buy up shares of Keppel Land at S$4.38 but was willing to bump up the price to S$4.60 if it could own more than 95.5% of Keppel Land by the time its offer closes.

With the close of the offer, Keppel Corp will be de-listing Keppel Land and shares of the latter have already been suspended from trading as of today.

Under Section 215(3) of the Companies Act, investors in the remaining 4.5% of Keppel Land now have the right to require Keppel Corp to buy over their shares at S$4.38 each in cash.

These investors can also choose to remain as a minority shareholder in the delisted Keppel Land. But, this particular course of action may not be desirable as they’d have no influence at all on the future direction of Keppel Land and they’d also no longer have a liquid market in which they can sell their shares.

(Interestingly, Keppel Land had been trading at around S$4.55 per share after the privatisation offer was announced and actually closed at S$4.45 yesterday. With the close of Keppel Corp’s offer, investors who had bought Keppel Land’s shares after the buyout was announced, hoping for the S$4.60 target to be hit, will be disappointed.)

What’s next for Keppel Corp?

With the impending privatisation of Keppel Land, Keppel Corp would gain even more exposure to the real estate sector and in the process, lessen its reliance on the oil and gas sector.

It’s a plus for Keppel Corp to diversify its revenue base even further given the less-than-ideal outlook for all things oil-related (that’s especially so given the dramatic plunge in the price of oil that started late last year).

That being said, there might be an area of concern with the privatisation and it deals with how the purchase would eat up a large chunk of Keppel Corp’s cash holdings. That’s worth watching especially when considering that the company’s latest total debt to equity ratio (as of 31 December 2014) is at 50.1%, which is not a low figure.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim owns Keppel Corporation Ltd.