Ascott Shares Surge On News Of Offer

Source : The Business Times, January 9, 2008

CapitaLand falls 5.3%; analysts say deal is positive for offeror in longer term

NEWS of CapitaLand’s offer to buy out minority owners of its subsidiary Ascott Group sent Ascott’s shares surging yesterday, as CapitaLand’s stock price dropped.

CapitaLand shares shed 33 cents or 5.3 per cent to close at $5.92 on news that the property giant could pay up to $989.5 million to acquire all remaining shares in Ascott. CapitaLand now owns 66.5 per cent of the company.

By contrast, Ascott’s shares gained 50 cents or 41.3 per cent to close at $1.71 yesterday. CapitaLand is offering $1.73 for each Ascott share.

Ascott’s shares rose because the offer is attractive to the company’s minority shareholders, analysts said. But CapitaLand’s shares took a beating because there is uncertainty over whether the deal is equally positive for CapitaLand.

‘We believe the deal looks very positive for Ascott shareholders,’ said Credit Suisse analysts Tricia Song and Teo Leng Chye. ‘For CapitaLand, it is slightly dilutive for pro forma earnings.’

Analysts were also split on whether the CapitaLand’s offer is on the pricey side. At least some think that the offer does not look cheap.

CapitaLand’s offer of $1.73 per share is 43 per cent higher than the last-traded price of Ascott’s stock before the offer was made and represents a premium of about 145 per cent to Ascott’s unaudited net asset value per share at Sept 30, 2007.

Other analysts, however, reckoned that CapitaLand’s offer is ‘fair’.

‘We believe the offer price of $1.73 share is reasonable and falls within the lower band of the fair value range for Ascott Group of $1.72-$2.29 a share,’ UBS Investment Research said in a note.

The deal is likely to be positive for CapitaLand in the longer term, some analysts said.

‘We view the move positively from a strategic standpoint,’ said Deutsche Bank analysts Gregory Lui and Elaine Khoo.

The privatisation of Ascott will allow CapitaLand to expand its service residence business more aggressively and is in line with its long-term plan to grow its fund management business in the long run, some analysts said.