Great Eastern privatisation deal deemed ‘not fair but reasonable’; OCBC says offer price ‘final’

OCBC’S privatisation bid for its insurance arm Great Eastern Holdings (GEH) is not fair but reasonable, the independent financial adviser (IFA) to the deal said on Friday (Jun 14).

Taking the factors it has considered, the IFA advises the independent directors to recommend that shareholders accept the offer.

After the IFA recommendation was put out, OCBC said in a separate announcement that its offer price was final and that it does not intend to increase it. 

In May, OCBC made a voluntary unconditional general offer of S$1.4 billion for the remaining 11.56 per cent stake in GEH that it does not own.

The offer price of S$25.60 per share represents a 36.9 per cent premium over GEH’s last traded price of S$18.70 before the offer announcement, but a 30 per cent discount to GEH’s embedded value per share of S$36.59 as at Dec 31, 2023.

OCBC had the aim to delist GEH with the deal, but according to listing rules, the IFA must opine that the exit offer is fair and reasonable for a counter to be delisted from the Singapore Exchange.

In ruling the offer “not fair”, the IFA noted that the offer price of S$25.60 per share is lower than its derived range of values for GEH’s shares, of between S$28.87 and S$36.19.

The price-to-embedded value ratio implied by the offer price represents a 30 per cent discount to GEH’s embedded value of S$36.59, and does not ascribe a value to its value of one year’s new business, the IFA said.

The price- to-net asset value ratio of 1.5 times is also lower than the average and median of that of comparable transactions of 1.8 times and 1.9 times, respectively.

Meanwhile, the IFA said that the offer was “reasonable” due to reasons including GEH’s low historical trading price and liquidity.

The IFA expects no other general offer will be capable of turning unconditional or succeeding, given OCBC’s 88.4 per cent shareholding in GEH. There is also a risk of trading suspension, given that it only takes around 1.56 per cent of total shares to be accepted, before GEH loses its minimum free float of 10 per cent.

The IFA is advising the independent directors to highlight that the current share price appears to be supported by the offer.

Shareholders should also note that GEH’s share price and liquidity levels may not remain at current levels after the close of the offer, and is not indicative of their future performance levels.

OCBC’s offer for GEH had come after a group of the insurer’s minority shareholders, led by former remisier Ong Chin Woo, raised concerns over GEH’s depressed share price and continued valuation decline.

In an attempt to “protect and preserve” shareholder value, the shareholders urged to table three resolutions at the insurer’s annual general meeting in April. These were calls to withhold directors’ fees until GEH’s share price recovers to 0.8 times its embedded value; to replace OCBC shares in GEH’s current executive share option schemes with GEH shares; and to appoint an IFA to explore options to enhance shareholder value.

While the resolutions were not tabled due to legal reasons, GEH discussed the concerns at the meeting.

Minority shareholders’ response

Wong Hong Sun, whose grandfather Wong Siew Qui (more popularly known as SQ Wong) was chairman of GEH for nearly 20 years, told The Business Times that he does not intend to accept the offer. He owns more than 3.2 million shares in GEH.

Meanwhile, Ong said that he intends to retain some GEH shares. “Personally, I intend to retain some GEH shares as a commemoration of this significant journey we have walked together, even if GEH is delisted,” he added.

Ong noted that the group of minority shareholders “feel affirmed by the IFA’s statement that the offer is ‘not fair’”.

“We acknowledge OCBC’s right to maximise its self-interests within legal boundaries,” he added. “However, we believe that in accordance with principles of good corporate governance and leadership, OCBC could have done more for GEH minority shareholders, who are essentially its ‘junior partners’ in the insurance business.”

Ong is hoping for an amicable resolution to the deal, and advises other shareholders to consider the IFA’s recommendations and consult with their financial advisers before making any decisions.

Ernst & Young Corporate Finance was the IFA appointment for the deal.

On Friday, shares of OCBC closed 1.1 per cent lower at S$14.14, while shares of GEH slipped 0.3 per cent to S$26.10, before the announcement.