• Proposed privatisation of SPH (SGX:T39) by Keppel Corp (SGX:BN4) with a total consideration of S$2.099/share values SPH at 1x P/NAV.
• Our deep dive report: What's Next For SPH? published on 17-Jun-2021 listed Keppel Corp as a potential investor in SPH. Both have a history of joint legacy investments over the years.
• SPH’s aspirations to grow its recurring income base in asset management are similar to Keppel Corp’s model, in our view.
• According to SPH, there were no pure cash offers in all of the bids received. Keppel Corp’s offer was an optimal one. Reiterate ADD (Target price S$2.19).

Proposed Privatisation of SPH With Total Consideration of S$2.099

• SPH announced that Keppel Corp has proposed to acquire all the shares of SPH post restructuring of the media business and excluding SPH’s 45.4% stake in SPH REIT (SGX:SK6U) through a scheme of arrangement.
• For each SPH share, SPH shareholders will receive a total consideration of S$2.099 comprising
  • cash of S$0.668 per share,
  • 0.596 Keppel REIT (SGX:K71U) units (valued at S$0.715 per SPH share) and
  • a distribution in specie (DIS) of 0.782 SPH REIT units (valued at S$0.716 per SPH share),
• implying a total equity value for SPH at S$3.4bn.
• The consideration will not be reduced by any potential cash dividend declared by SPH for FY21. SPH will also retain a 20% stake in SPH REIT post transaction.
• The deal is subject to completion of Media Business Restructuring (including conversion of management shares), shareholders’ and other regulatory approvals and no occurrence of Materially Adverse Effect condition. The EGM is expected to be held in Oct-Nov 2021 and completion date in Dec 2021 or after completion of Media Business Restructuring. If the Scheme becomes effective, Keppel Corp will own 100% of SPH and SPH will be delisted.

Offer Price for SPH Seems Fair, at 1x P/NAV

• At S$2.099, the deal is valued at ~1x units in Keppel REIT and SPH REIT, the deal provides shareholders with an opportunity to participate in the recovery of the retail and commercial sectors, at attractive dividend yields of 4-5%, in our view.

Reiterate ADD Rating on SPH

• The privatisation offer by Keppel Corp is the second step in SPH’s strategic target price of S$2.19 for SPH. Our FY21-23F earnings per share estimates are unchanged, pending completion of the transaction.
• Re-rating catalysts/ downside risks include failure to spin-off the media business or to obtain the required shareholders’ approvals.

Source: CGS-CIMB Research - 3 Aug 2021