'Reject takeover offer for S P Setia shares'

KUALA LUMPUR (Mar 6): The independent adviser for the takeover of S P Setia Bhd by Permodalan Nasional Bhd (PNB) has recommended shareholders reject the offer of RM3.95 a piece for the shares PNB does not already own in the company. However, it advised warrant holders to accept the warrant offer of 96 sen each.

On Sept 28, 2011, PNB extended a conditional takeover bid to acquire for cash all S P Setia shares at RM3.90 per share and warrants at 91 sen per unit.

On Jan 20, 2012, S P Setia president and CEO Tan Sri Liew Kee Sin and PNB became joint offerors in a revised takeover offer. The offer price for the shares was revised upward to RM3.95 and the offer for warrants was revised to 96 sen.

In an independent advice circular dated Mar 5, AmInvestment Bank Bhd said the offer price of RM3.95 is "not fair and not reasonable" and recommended shareholders (in the absence of a compelling takeover offer) reject the offer.

AmInvestment said the offer price represents a 21% discount to S P Setia's estimated realisable net asset value (RNAV) of RM5.

It said S P Setia, with high liquid funds of approximately RM1.44 billion, may be able to acquire land in order to sustain its earnings in the long term, which could enhance its RNAV further.

"The share offer price does not reflect the fundamental value as reflected in the estimated RNAV of S P Setia," it said in the circular.

On S P Setia's historical share price performance, AmInvestment said the property developer's shares generally traded at a premium to the offer price from January to June 2011.

It said the offer price represents a premium ranging from 5.05% to 23.05% over the three-month, one-month and five-day volume-weighted average market price (VWAMP) of S P Setia shares to Sept 27, 2011.

Comparing the offer price against precedent takeovers of listed property companies in the past three years, it said the offer price's premium over the five-day VWAMP of 23.05% was above the average premium of 17.95% of precedent takeover offers.

However, it said the premium of 16.52% and 5.05% over the one-month and three-month VWAMP was below the average premium of 21.15% and 24.5%, respectively, of precedent takeover offers.

For the past one year to Sept 27, 2011, AmInvestment said the offer price's implied price-earnings ratio (PER) of 20.57 times was below the average trading PER of 21.42 times. For the same period, the offer price's implied price-to-book ratio (PBR) of 2.1 times was below the average trading PBR of 2.47 times.

On a PER and PBR basis, it said this simply means that the market has historically, on average, ascribed a higher value to S P Setia than the offer price.

AmInvestment also noted that due to the offer, the upside for S P Setia's share price is limited by the offer price during the offer period.

It also said S P Setia's yield of 3.71% for the past three years was above the average dividend yields range of comparable companies of between 0.77% and 2.55%. It said shareholders accepting the takeover offer will be foregoing the opportunity to enjoy dividend payouts by S P Setia.

On the offer for S P Setia warrants, AmInvestment said it is "not fair but reasonable" and recommended warrant holders (in the absence of a competing takeover offer) accept the warrants offer.

It said the intrinsic value of the warrants based on the estimated RNAV of S P Setia is RM2.01, hence the warrant offer price of 96 sen represents a 52.24% discount from the intrinsic value of the warrants.

It added that the warrant offer price represents a significant premium of 43.28% to 128.57% over the five-day and three-month VWAMP of the warrants, up to Sept 27, 2011.

The warrant offer price also represents a 35.21% premium over the theoretical value of the warrants computed based on the Black-Scholes model of 71 sen (based on the share price of RM3.50 on Sept 27, 2011).

It noted that the warrant offer price is equivalent to the intrinsic value of the warrants 96 sen, the difference between the exercise price of RM2.99 and the takeover offer price of RM3.95.