The Keppel Corp Ltd (KEP SP) Partial Offer situation is now 9 months old. These pages have been relatively constantly filled with updates and insights on how one could position oneself with Keppel against its peers and Proxy Baskets, whether to tilt long or short, and where to think about Pro-Ration and Participation.
The Pound-The-Table Bullish calls in early and mid-March paid off well, both directionally and against proxy baskets. Since 30 April, the back end trade (i.e. buy, see 95% of minorities tender (including yourself) and be long the residual at the implied breakeven price) had traded cheaper than the day before the announcement of the Deal compared to an average of the FTSE Straits Time Index, a Property Basket, and an Infra-Heavy Basket on only two days. It has traded well rich to an O&M Heavy Basket since then.
Then came Friday 24 July 2020.
On Friday, Keppel announced “Profit Guidance” which included significant impairments to the O&M business in Q2 and H1.
My base case in my April and June insights had been that the deal would go through, but that there was increased possibility of bad timing of impairment. That, along with overvaluation vs Proxy Baskets, suggested to me that most of the time since 30 April, a long position in Keppel vs its peers or proxy baskets should be unwound.
That’s no longer my base case. The quantum of the writedown matters for any number of reasons, as does the possibility that Temasek will be badly advised.
Stephen Wong & concert parties holding 40.88% of shares out and will not tender. Additional directors holding 0.9% have given an undertaking not to tender. With 58.22% of the register (or the Independent Shareholders) subject to the buyback, this implies a minimum pro-ration of 22.04%. The Independent Shareholders are required, by way of a special resolution (75% vote), to approve a whitewash waiver such that Wong is not obligated to make a general offer for shares not held.
At HK$2.40, minimum pro-ration is a back end at HK$2.29 which isn’t a huge discount, but with 14.9% accretion of EPS and 7.7% accretion of BVPS, the back-end should trade at perhaps 7.7-14.9% above where it was trading.
Separately, Skyworth announced on the 15 July it had submitted a PN15 application to spin-off and list (non-wholly-owned) Shenzhen Coocaa Network Technology Company Limited (Coocaa), an internet-based operator of smart television systems. There is no guarantee the spin-off will occur or not. Concurrent with the Coocaa announcement, Skyworth announced a positive profit alert.
The New News
On the 2 July, Skyworth announced it had delayed the Offer Document until the 31 July, from 8 July originally. This was largely to be expected. The Offer doc is now out and the Offer is open for acceptances. The SGM (for the whitewash waiver) will be held on the 2 September, with the close of the offer on the 2 September. The IFA considers the Offer to be fair and reasonable.
As always, more below the fold. Plus Ye Olde Arb Grids.