• Conditional cash offer at S$2.22
• Valuation deemed to be reasonable
• Recommendation: accept the offer

Voluntary conditional cash offer of S$2.22 per share

CMA’s parent, CapitaLand (CAPL), announced that it will make a voluntary conditional cash offer of S$2.22 per share for all remaining shares that it does not already hold. Note that CAPL currently owns 65.3% of CMA and would require another 24.7% acceptances to cross the 90% threshold for the offer to be declared unconditional. In that event, CAPL has stated that it intends to compulsorily acquire all shares not acquired under the offer and delist CMA. In addition, there will be no downstream offer for CapitaMalls Trust and CapitaRetail China Trust, in which CMA holds deemed interests of 27.6% and 37.1%, respectively. The offer document will be dispatched within 14-21 days and the closing date will be around end May to June 2014.

Expected to be earnings and ROE accretive to CapitaLand

The privatization of CMA will simplify CAPL’s organizational structure and enable more flexible capital allocation across business segments, therefore enhancing its capabilities in integrated developments. This action also allows CAPL management to deploy significant capital to already wellunderstood assets, and accrete to earnings and ROE meaningfully – the latter is now a key strategic focus for management. On a post-transaction pro-forma basis, CAPL’s FY13 EPS would have increased from S$0.20 to S$0.24 and ROE from 5.4% to 6.7%.

ACCEPT the offer

We believe that the offer price is fairly decent, given that it represents a 21% premium to book and a reasonable 8% discount to RNAV. CMA’s shares have mostly traded below its IPO price (S$2.12) since its listing in 2009 due to various structural and macro-economic headwinds, and this provides an opportunity for investors to exit at a reasonable valuation. The delisting will likely succeed, in our view. Alternatively, we note that CAPL reserves the right to reduce the conditional acceptance level below 90%; if that happens, residual minority shareholders of CMA may find themselves in a situation with reduced trading liquidity and a smaller float. Our recommendation: ACCEPT the offer.

Source: OCBC Research - 15 Apr 2014