• Jardine Matheson (SGX:J36) announced that it was buying the 15% of Jardine Strategic (SGX:J37) that it does not own at US$33.00 per share.
• The acquisition is expected to be effective by end-April 2021 and Jardine Strategic will be delisted. A capital reduction in 2022 will cancel Jardine Strategic’s 59% stake in Jardine Matheson.
• Reiterate HOLD ahead of analysis of Jardine Matheson's FY20F results due this Friday.

Jardine Strategic Offer Details

• At 6.01am this morning, Jardine Matheson announced that it would acquire the 15% of Jardine Strategic that it does not own in cash at US$33.00 per Jardine Strategic share. Once completed, Jardine Matheson will own 100% of Jardine Strategic.
• The offer price is at a 20.2% premium to Jardine Strategic’s closing price of US$27.45 on 5 Mar 2021, 29.0% to the one-month volume-weighted average closing price of US$25.58 and 40.3% to the 6-month volume-weighted average closing price of US$23.53.
• The acquisition will be implemented by way of an amalgamation under Bermuda law requiring approval by 75% of Jardine Strategic shareholders. As Jardine Matheson already owns 85% of Jardine Strategic, the requisite shareholder approval is certain to be acquired, in our view.
• The acquisition is expected to be effective by the end of Apr 2021. Jardine Strategic will be delisted.
• No regulatory clearances are likely to be required. The UK Takeover Code and Singapore Code on Takeovers & Mergers do not apply to the acquisition.
• Jardine Strategic currently owns 59% of Jardine Matheson. Following the completion of the transaction, Jardine Matheson will propose a resolution to cancel Jardine Strategic’s 59% stake via a capital reduction at Jardine Matheson’s annual general meeting in 2022.

FY21F Outlook

• In its acquisition announcement, Jardine Matheson highlighted that it will report FY20F uncertain due to the continuing impact of the pandemic.

Impact

• On a pro-forma basis, Jardine Matheson guided the acquisition will result in share increasing to US$3.84 from US$2.95 due to the lower share base.
• While awaiting its final results this Friday, we reiterate our HOLD and target price based on 0.85x P/BV (historical FY00-FY19 average) and RNAV per share of US$64.33 for Jardine Matheson.
• Key upside/downside risks remain COVID-19 impact on economic conditions in Greater China and Southeast Asia as well as US-China tensions.
• Jardine Strategic Share Price; Jardine Strategic Dividend History; Jardine Strategic Announcements; Jardine Strategic Latest News.

Source: CGS-CIMB Research - 8 Mar 2021