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3 Things Investors Should Know About Temasek’s Bid For SMRT Corporation Ltd

SMRT Corporation Ltd (SGX: S53) has made two huge announcements in short order.

Last Friday, the land transport services provider revealed that it plans to sell its rail operating assets to the Land Transport Authority (LTA) for S$1 billion. The sale, if it happens, would effectively change the company’s business model from asset-heavy to asset-light. It’s a deal that may change SMRT Corporation’s business significantly – you can find out more about the possible changes here.

Then, yesterday, SMRT Corporation announced that its largest shareholder, Temasek Holdings, has released a buyout offer. Temasek, which is one of the Singapore government’s investing arms, currently owns 54% of SMRT Corporation’s shares and it wants to buy the remaining 46% stake.

Here are three things investors should know about the potential privatisation of SMRT Corporation.

1. The buyout offer (一路发 – “Yi Lu Fa”)

Temasek has offered a price of S$1.68 for each SMRT Corporation share that it does not currently own. That’s a premium of 8.7% over the company’s last traded price of S$1.545 just prior to the buyout announcement.

The buyout offer values SMRT Corporation at S$2.6 billion and the sovereign wealth fund would have to fork out S$1.2 billion at the price of S$1.68 per share.

2. The buyout method

Temasek’s buyout offer will be a little different from typical privatisations. The sovereign wealth fund is using a scheme of arrangement. Under the scheme, all shareholders (excluding Temasek) would be voting on the proposed deal.

The vote would be held at a Scheme meeting and so long as 75% of the votes present during the meeting approve the deal, the privatisation would go through, subject to regulatory approval.

If Temasek fails with this bid, it would have to wait one more year before it can launch another buyout offer if it wishes to do so.

3. Another major privatisation

If SMRT Corporation is successfully privatised, it would mean yet another high-profile privatisation in Singapore.

In the years since the global financial crisis, there have been multiple privatisation deals for companies in Singapore’s stock market that have market capitalizations of over S$1 billion. Here are just some of the billion-dollar companies in the market that have been privatised since 2009:

  • OSIM International
  • Goodpack Limited
  • Cerebos Pacific Limited
  • Asia Pacific Breweries
  • Keppel Land Limited
  • CapitaMalls Asia
  • Neptune Orient Lines Ltd
  • Tiger Airways Holdings Limited

A Fool’s take

SMRT Corporation may see a huge change to its business model with the likely sale of its rail operating assets. Yet, its main shareholders are eager to take the company private right after the company proposed the asset sale.

This raises the question: Should minority investors have been given more time to understand the implications of the new rail financing framework (NRFF) before worrying about whether they should sell their shares to Temasek? I think they should.

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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 doesn’t own shares in any companies mentioned.