ERA, one of the largest international real estate agencies with a presence across 10 countries and more than 20,000 advisors was first listed on the SGX through its holding company Hersing Realty in 1998. It was delisted in 2013 and sold for about S$130 million by former parent Hersing Corp to private equity fund Northstar.
It was then re-listed in September 2017 at an IPO price of S$0.66 which corresponded to a market capitalisation of S$234 million.
Today, Morgan Stanley, through Morgan Stanley Private Equity Asia (“MSPEA”), announced that it has agreed to acquire 59.8% of the total outstanding shares of SGX-listed APAC Realty Limited (“APAC Realty”), a leading real estate services company in Asia, for a total consideration of approximately S$129.5 million. The 59.8% shares are to be acquired from Northstar which works out to approximately S$0.61 per share (inclusive of S$0.04 of dividends).
This transaction values the company at S$216 million. After the acquisition, MSPEA will have a 61.1% position due to an initial 1.3% stake previously.
MSPEA has now made an unconditional mandatory general offer of S$0.57 per share to all other shareholders.
Rationale of acquisition
MSPEA says that it will help to further build on this solid foundation and support APAC Realty’s growth by leveraging our global network and extensive experience of growing businesses across Asia. They believe that their partnership with APAC Realty and its management team will bring significant benefits to all stakeholders of the company, including customers, developers, advisors, employees and shareholders.
They have also indicated that they may undertake a strategic and operational review of the company with a view to realising synergies, economies of scale, cost efficiencies and growth potential.
Does MSPEA have the right to lowball shareholders?
To understand this, we have to understand the Singapore Takeover Code.
Under Rule 14 of the Singapore Takeover Code issued by the Monetary Authority of Singapore (MAS), any person who acquires shares which carry 30% or more of the voting rights of the Company must make a mandatory general offer for the shares which it does not already own or control.
Alternatively, they can seek a whitewash waiver which would allow them to not make a mandatory general offer. The whitewash waiver application is assessed by the Securities Industry Council (SIC) of MAS. Should SIC approves the application, it would allow MSPEA to then hold an Extraordinary General Meeting to seek independent shareholders approval.
What were Morgan Stanley’s options?
- Option 1: Seek a whitewash waiver. With SIC’s approval, Morgan Stanley can seek independent shareholders for approval at an EGM.
- Option 2: Make a mandatory general offer for the shares which it does not already own or control.
What should existing shareholders know?
1) Key management will not tender their shares
The key management of APAC Realty whom in concert have approximately a 9.0% stake have provided an irrevocable undertaking to MSPEA not to tender their shares.
2) You have the right to keep your shares but…
It is currently not compulsory for existing shareholders to tender their shares as MSPEA currently does not have 90% of shares. Neither will it be compulsory once MSPEA acquires 90% of shares. This is because, the key management who will not tender their shares accounts for more than 10% of the remaining shares and the listing rules protects minority shareholders in this aspect.
However, SGX requires a free float of 10% and a minimum of 500 shareholders. Should APAC Realty falls below this threshold, APAC Realty will be required to suspend trading and MSPEA has stated that it has the intention to delist the company then.
A delisting is inevitable once MSPEA controls at least 90% of shares.
3) MSPEA has support of 72.16% shares
Northstar had 70.86% in shareholdings as at 11 March 2022 which means after the sale of 59.8%, and an agreement to transfer 9% to APAC Realty’s management, they would be left with 2.06%.
This means that MSPEA has the support of a total of 72.16% of shares for the delisting and would require minorities to tender another 17.84% of shares to get to a 90% stake. This 17.84% of shares required amounts to 63,367,270 shares.
4) The offer price is too low
The offer of S$0.57 is a discount to the metrics as shown below.:
It is also a discount to the IPO price of S$0.66.
5) You retain the right to sell at the offered price later
In the event that MSPEA acquires no less than 90% of the total number of outstanding shares, shareholders who have not yet accepted MSPEA’s offer would be entitled to let MSPEA acquire their shares at the offer price.
However, this also means shareholders can retain their shares in a suspended stock or an unlisted corporation should they choose not to sell.
What should existing shareholders do now?
Very simply, remaining shareholders who hold 27.84% of the shares should consider the offer price based on its financial merit.
However, keep in mind that MSPEA does not have to mandatorily acquire all shares. Hence, minority shareholders who do not want to be left holding shares in an unlisted company will have to tender their shares, if MSPEA is able to secure a 90% stake.
While you can try to hold out for a higher offer, MSPEA only needs to acquire another 17.84%. At this point, it is quite unlikely that MSPEA will provide for a higher offer.
Closing statement
It seems like the offer undervalues the company when compared to the last traded price and other comparables.
Shareholders can try to hold out for a higher price, but it is quite unlikely that MSPEA will provide a higher offer as they already have built up a significant stake, given that Northstar was willing to sell their shares. Hence it is inevitable that a new major shareholder keen on taking the company private would surface anytime soon.