SMRT Shares Trail Temasek’s $884 Million Buyout Offer Price

  • Shares reach as high as S$1.67 versus offer of S$1.68
  • State investment company Temasek owned 54% stake in SMRT

SMRT Corp. shares rose after Singapore’s state investment firm Temasek Holdings Pte offered S$1.2 billion ($884 million) to buy out the island-city’s biggest train operator, 16 years after the company became the first Asian subway operator outside Japan to list shares.

The shares advanced 6.5 percent to close at S$1.645, resuming trading Thursday after a suspension on July 15. The stock rose to as high as S$1.67 earlier in the session, less than Temasek’s offer of S$1.68 a share that valued the rail operator at S$2.6 billion. The price is fair and final, Temasek President Chia Song Hwee said Wednesday after the proposed buyout, first reported by Bloomberg News this week, was made public.

At least three brokerages said investors should accept the buyout by Temasek, which is seeking to take the subway operator private after multiple service disruptions since late-2011 evoked public criticism in a country famous for its clean trains and public infrastructure. Last week, SMRT said it’s transferring S$991 million of rail assets to the transport regulator to focus on improving services.

‘Fairly Compensates’

“We believe the offer fairly compensates shareholders for an expected return that the stock will generate in the next 12 months,” given near-term cost headwinds and uncertainty on rail fares and ridership, Shekhar Jaiswal, an analyst at RHB Research in Singapore, wrote in a note Thursday.

Analysts have a consensus 12-month price estimate of S$1.43 for the stock, according to data compiled by Bloomberg. SMRT shares last traded at S$1.545 on July 15 before the halt.

Malayan Banking Bhd., Oversea-Chinese Bank Corp. and UOB-Kay Hian Holdings Ltd. recommended accepting the buyout in separate research notes. Macquarie Group Ltd. said the offer was generous and Nomura Holdings Inc. called it attractive. 

Samsung Asset Management will accept the offer, Alan Richardson, an investment manager in Hong Kong at the fund manager, said by phone Thursday. Samsung Asset owned about 30,000 shares of SMRT as of March 31, according to data compiled by Bloomberg.

For Andy Mukherjee’s column on Temasek’s SMRT buyout, click here.

Temasek currently owns 54 percent of SMRT. The investment firm, which this month reported the first drop in the value of its stakes in seven years, has trimmed exposure to traditional banks and also embarked on a record pace of divestitures as part of a portfolio overhaul. As a group, technology, media and telcos overtook financial companies as Temasek’s biggest industry sector for the first time in a decade.

SMRT offers “predictable cash flows and so slightly less risky investment than the usual investments in tech, consumer services and health care that Temasek generally does,” said London-based Enrico Soddu, head of data at the Sovereign Wealth Center.

Temasek sold shares in SMRT in July 2000, pricing the initial public offering at 61 Singapore cents to raise about S$300 million. The stock failed to enthuse investors on its debut, gaining 0.1 percent.

In the past five years, SMRT’s stock has fallen 12 percent, compared with a doubling in shares of ComfortDelGro Corp., operator of Singapore’s largest taxi fleet and controlling shareholder of the main bus company.

Temasek’s Chia said the state firm was a long-term investor in SMRT, supported the management’s plans and had no intention of losing money. Taking SMRT private would give the company flexibility and enhance rail reliability, he told a press conference Wednesday, adding the buyout wasn’t a nationalization.

“Temasek is an active investor but not an operator,” Chia said. “We want to provide an environment to focus on improving the company. There are risks but it also means the company needs to work to make a decent return.”

The service disruptions had dented the rail operator’s reputation and led the Singapore government to tighten rules on maintenance and supervision. Transport Minister Khaw Boon Wan appointed an engineering specialist in October last year to advise on rail transformation.

As part of the revamp, rail operators were to focus on service instead of having to build up, replace and operate assets.

SMRT will use the proceeds from the buyout to reduce debt and the company won’t pay a special dividend from the transaction.

Scheme of Arrangement

The deal will take place through a so-called scheme of arrangement, requiring approval from a majority of shareholders present at a meeting representing at least three-quarters of eligible votes, according to an SMRT statement. The meeting is expected to take place by October.

Temasek has no voting right for this buyout, according to presentation materials filed to the exchange. SMRT is expected to become a wholly owned subsidiary of Temasek around October to November, and be delisted following approval from the exchange.

The latest deal would add to at least four other buyouts with a combined value of about S$4.5 billion in Singapore in the past year.

In December, French container shipping company CMA CGM SA offered to buy Singapore’s Neptune Orient Lines Ltd. for S$3.4 billion. Temasek was the biggest seller, divesting its 67 percent stake.

Osim International Ltd. Chief Executive Officer Ron Sim in April increased his cash offer for a second time to S$331 million to take Asia’s biggest maker of massage chairs private. A month later, Eu Yan Sang International Ltd. received a takeover bid from a group including a Temasek unit, valuing the retailer of traditional Chinese remedies such as bird’s nest soup and ginseng capsules at about S$269 million.

Singapore Airlines Ltd. completed its takeover of Tiger Airways in May for about S$497 million and delisted the low-cost unit carrier.

SMRT currently operates three metro rail lines in Singapore, while rival SBS Transit Ltd. runs two. Singapore is building its sixth line, which will start operations in 2019. Credit Suisse Group AG and Bank of America Merrill Lynch are advising Temasek and SMRT respectively.

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