UOL Group Makes Bid For UIC

Source : The Straits Times, Jan 15, 2009

Firm controlled by Wee Cho Yaw offers $1.20 a share for stake

UOL Group has triggered the biggest corporate play since the financial crisis flared last year by offering to buy United Industrial Corp (UIC) in a deal that values the real estate developer at $1.6 billion.

UOL, a property firm controlled by United Overseas Bank (UOB) chairman Wee Cho Yaw, will pay $1.20 a share for the stake it does not already own in UIC, according to a filing on the Singapore Exchange yesterday.

That is a 9.1 per cent premium to UIC's last traded price of $1.10.

UOL Equity Investments - a wholly owned unit of UOL - and the relevant parties, including UOB, Haw Par Corp and Mr Wee himself, now own about 29 per cent of UIC.

Under the proposed deal, UOL Equity Investments has agreed to acquire 15.86 million UIC shares, or 1.2 per cent of the issued shares, from unnamed sellers.

This means UOL and the relevant parties will own about 30.2 per cent of UIC. As they have crossed the 30 per cent mark, they will have to make a mandatory general offer with the aim of reaching a controlling stake of more than 50 per cent.

UOL and UIC clearly have areas of common interest, and a merger could spell dividends.

The jewel in the UIC crown is its 72.4 per cent stake in listed property group Singapore Land (SingLand), which owns various office and retail properties, including the Marina Square shopping mall.

UOL has a stable of properties in Singapore and abroad, including Odeon Towers, Faber House, Novena Square, United Square, as well as Grand Plaza Parkroyal Kuala Lumpur and Grand Plaza Parkroyal Penang in Malaysia.

If, for instance, UOL and the relevant parties accumulate more than 50 per cent of UIC, the offer turns unconditional, which means the deal will have to go through, being no longer dependent on any conditions to succeed.

In such a scenario, UOL will also be required to make a mandatory takeover offer for SingLand at $3.57.

Market watchers think that UOL's offer of $1.20 per share is too low.

While UIC stock has plunged from its year-high of $3.17 last June, its net asset value per share as at Sept 30 stood at $2.48. At $1.20 a share, UOL is getting a 'bargain', they say.

Earlier this month, Filipino tycoon John Gokongwei raised his stake in UIC to 35.05 per cent after his investment vehicle, Telegraph Developments, bought 500,000 shares at an average price of $1.085 each.

This was on top of purchases of 1.095 million shares at between $1.002 and $1.085 apiece that Mr Gokongwei, who is UIC's deputy chairman, made in December.

Two questions come to mind.

Why is Mr Wee offering such a low price for UIC, even after factoring in market conditions that have dragged down asset valuations?

'He could have offered $2, or slightly more. Shareholders may have been more inclined to accept,' said a fund manager.

One argument is that Mr Wee, an astute banker and dealmaker, wants to pay as little as possible and may be looking for distressed sellers who need cash.

Other UIC shareholders include JG Summit Holdings, Morgan Stanley and Fullerton Fund Management Company, a wholly owned unit of Temasek Holdings.

JG Summit Holdings is the holding company of JG Summit Philippines, which in turn is the holding company of Telegraph Developments.

For one thing, Mr Gokongwei is unlikely to accept the offer.

He made a takeover bid for UIC in 2005, after his stake rose above the 30 per cent mandatory takeover trigger.

His offer was at $1.09 a share, which then prompted Merrill Lynch, the independent financial adviser to UIC's independent directors, to say it 'is not fair from a financial point of view'.

Though the bid failed, it allowed Mr Gokongwei to accumulate up to 1 per cent of UIC's share capital in any six-month period without triggering further mandatory takeover offers.

The second question surfaces: What exactly is Mr Wee up to?

There is no doubt he sees something in UIC. UOL has said the deal would allow it to 'better align' the strategic objectives of UIC with its own.

If Mr Wee wanted to 'prise away' UIC, UOL would have come up with a higher bid, but the fact that it did not leaves some observers to believe that UOL's move is purely tactical.

'In merger and acquisition, you never show your best hand,' an investment banker said.

Mr Wee's UOL could even end up doing a Mr Gokongwei-style takeover, suggested one observer, gradually nibbling away at UIC and shoring up stakes in the property-based conglomerate so long as the 1 per cent threshold is not breached in any six-month period. It remains to be seen what Mr Gokongwei will do.

UOL said yesterday it does not intend to revise the offer price 'except that the offerer reserves the right to do so in a competitive situation'.

An analyst said: 'I would love for Mr Gokongwei to trump the bid. It sends a strong signal to the market that there are people who aren't bothered by the credit crunch and can look to long-term growth in the Singapore property market.'