Is OCBC shares worth $50? Maybe even more. Recently OCBC made waves when it announced the offload of its 33.5% shares in United Engineers (UE) to a consortium led by Yanlord Group and Perennial Real Estate Holdings. The block sale consisted of shares held under OCBC, Great Eastern Holdings and the founding Lee Family. News of the deal propelled OCBC share price to a 5-year high and triggered a mandatory takeover offer for the rest of United Engineers shares.
The United Engineers Deal
The offer price for the UE deal was $2.60 and represented a price-to-book value of about 0.88. The fact that OCBC sold its stake in UE at a price below book value reflected the poor market sentiments. After all, United Engineers is still making healthy profits and is not considered a distressed asset at all. For the record, UE made a profit of $7.1 million in 1Q2017, a decline of 25% from last year. Hence, in my point of view, the block shares sale should have fetched higher price.
For OCBC, the deal would unlock value for shareholders and made business sense as property development is not OCBC’s core business. The sale is worth an estimated $550 million and is a windfall for OCBC. The bank cost per UE share should be about $1.60.
On the other hand, minority shareholders of UE would be very unhappy that the takeover price is at such underwhelming level and personally, I would be very surprised if the consortium can successfully acquire all the remaining shares. Regardless the outcome, the low-ball offer only serves to vindicate that the big boys always win in the stock market. Those retail shareholders who bought United Engineers shares at $3.40 a few years ago would be staring at substantial losses if the takeover deal is successful.
The divestment of United Engineers is long overdue as Monetary Authority of Singapore (MAS) had mandated local banks to dispose non-core assets by 2006. It has been more than a decade past the compliance deadline but local banks like OCBC and UOB are still holding to various non-core assets like property firms. However, onerous [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]
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