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With Rumours Of A Privatisation Hanging, Does Global Logistic Properties Ltd Offer Good Value Now?

Earlier this week, Bloomberg reported that private equity firm Warburg Pincus has plans to form a consortium to take Global Logistic Properties Ltd (SGX: MC0) private.

The news of a potential privatisation had sent the company’s share price climbing to S$2.65 currently, some 7.7% and 18.8% higher compared to a week and month ago, respectively.

Over the same time periods, Singapore’s market barometer, the Straits Times Index (SGX: ^STI), has inched up by just 1.8% and 2.0%.

The business of the company

Global Logistic Properties is mainly an owner and developer of modern logistics facilities. It has operations in four countries, namely, China, Brazil, Japan, and the US. The company’s the largest provider of modern logistics facilities in the first three countries and the second largest in the fourth.

Over the past five years, Global Logistic Properties has seen its book value per share grow at a compound annual rate of just 4.6% from US$1.56 to US$1.96.

The buyout news

Rumours of Global Logistic Properties being fully acquired had first appeared in early November 2016 when a Bloomberg news piece stated that a group of investors, including China’s sovereign wealth fund, was interested to takeover the company.

This was followed by an early December announcement from Global Logistic Properties that it was conducting a strategic review of its business after being prompted by its largest shareholder, GIC, one of the Singapore government’s investment arms.

But in its announcement, Global Logistic Properties also cautioned that there “is no assurance that any transaction will materialise from the strategic review.”

What investors should know

I have no knowledge of the odds of a privatisation of Global Logistic Properties happening in the near future. But I do know two things.

Firstly, rumours of a potential takeover of a listed company can attract plenty of attention from investors hoping to make a quick buck. That’s because privatisations tend to happen at a price that is higher (sometimes significantly so) than the target company’s prevailing share price just before any formal takeover announcement’s made.

A good example is the ongoing privatisation of Super Group Ltd (SGX: S10). Back in November 2016, Dutch coffee company Jacobs Douwe Egberts had offered to fully acquire all of Super Group’s shares at a price of S$1.30 each. The price of S$1.30 is 34% higher than the price of S$0.97 that the company’s shares closed at just before the privatisation was officially announced.

Secondly, when making an investing decision on any company’s shares, it is always crucial to focus on the company’s underlying economic worth. This holds even for potential privatisation targets. That’s because the acquirers of a company would also want to buy at a good value – they wouldn’t want to enter a deal that does not make economic sense.

With the two things in mind, I thought it would be interesting to have a look at how Global Logistic Properties’ price-to-book (PB) ratio has changed over the past five years. Here it is:

Global Logistic Properties' PB ratio over past 5 years
Source: S&P Global Market Intelligence

The company’s currently priced at 1 times book value and you can see in the chart above that the valuation metric is near the middle of where it has been for our timeframe understudy. (The highest PB ratio is 1.39 while the lowest is just 0.61.)

The PB ratio is of course not the final word on whether Global Logistic Properties’ shares offer good value right now. But, it’s still a useful angle to have when considering the prism of Global Logistic Properties’ underlying economic worth.

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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 Chong Ser Jing owns shares in Super Group.