There's been a small initial increase in the bid for Kerry Properties, but it won't be enough to clinch the deal at 47% discount to NAV. When Henderson Land upped its bid for Henderson Investment, it ruled out a further increase, painting itself into a corner. Kerry Holdings has been wise enough not to do the same thing. We take a look at the other property holdings of key player Capital Group, who would have a lot to lose by accepting this derisory offer.

Kerry on Bidding, Mr Kuok
2 May 2003

Robert Kuok Hock-nien's Kerry Holdings Ltd today announced an initial increase in its privatisation offer for Kerry Properties Ltd (KP, 0683), now offering $9.50 per share, up from the previous $8.50. The bid still represents a 47% discount to balance sheet NAV of $17.94 per share at 31-Dec-02 and is only 10 cents above the 52-week high of $9.40. It's an offer which is wholly inadequate and derisory.

Where others have failed...

The balance sheet value of $17.94, remember, is supposed to be a "true and fair view" of what the board of directors collectively thinks the net assets are worth at the balance sheet date. Surely that figure cannot have come down by 47% in 4 months since the year end.

The offer discount compares poorly to the 18.8% at which Realty Development was successfully privatised in February, the 28.6% discount on Ryoden Development' successful deal in Sep-02, and the 38.0% discount at which Henderson Investment's privatisation failed in Jan-03. To compare, here's what the offer would be at the same discounts:

Target Disc. Result Corresp.
price for KP
Realty Dev Corp 18.8% Passed $14.57
Ryoden Development 28.6% Passed $12.81
Henderson Investment 38.0% Failed $11.12

Note: RDC and Ryoden discounts are discounts to adjusted NAV as stated in the shareholder circulars, while Henderson Inv is a Webb-site.com estimate based on fair value of investments.

In 1996, KP was floated at a 33% discount, or 67 cents on the dollar. The initial increase in the privatisation offer is pitched at 53 cents per dollar of NAV. We think that if Mr Kuok wants to take his company private again, he should at least pay back that 67 cents on the dollar, which would work out at $12.02 per share.

If it were not for the fact that the paid announcement appeared in today's South China Morning Post, which Kerry Holdings also controls, we would suggest that they had been wasting money announcing it. But SCMP needs the advertising revenue, so we won't begrudge them that. SCMP Group Ltd, which owns the paper, is also a shareholder of KP.

Wisely leaves room for increase

Kerry has not ruled out a second increase in their offer to a more realistic and sensible level. This was a wise move on their part. When Henderson Land misjudged the market and increased its offer for Henderson Investment by just 3.4%, they painted themselves into a corner by making a "no increase" statement which, under Rule 18.3 of the Takeover Code, which prohibited them from increasing the offer. As a consequence, they were unable to respond to the opposition and they lost the bid. Kerry has kept its options open.

Capital Group has a lot at stake

Capital Group, one of the largest institutional investors in Hong Kong, owns about 5.33% of KP and is capable of blocking the deal, as it only takes 2.408% to block it. We believe they are a long-term value investor, making decisions for their clients in the interest of absolute returns rather than indexed, and Kerry has clearly misjudged their staying power. Capital Group must also have regard to the precedent that this would set for other stocks in their portfolio which may also come under offer in the future - for example, they own 9.24% of Great Eagle Holdings Ltd, 5.69% of Hang Lung Group Ltd, a whopping 13.54% of its associate Hang Lung Properties Ltd, and 6.10% of Hysan Development Co Ltd, all of which have major holdings of commercial property in Hong Kong. If Capital Group were to accept a low bid for KP, then they would get lower bids if the others are privatised in future.

Capital Group can block the deal, but they can't un-block it - there are other institutions and the retail public to consider. Webb-site.com editor David Webb is also a shareowner in KP and intends to vote against the offer unless it is increased to a fair and reasonable price. We don't have enough shares to stop the deal single-handed, but with other investors we can make the difference. So carry on bidding, Mr Kuok - you will have to do much better to clinch the deal, and still get a respectable discount.

© Webb-site.com, 2003

Organisations in this story

Sign up for our free newsletter

Recommend Webb-site to a friend

Copyright & disclaimer, Privacy policy

Back to top