Will OSKP and PJD minorities accept Ong’s offer?

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KUALA LUMPUR: Shares in OSK Property Holdings Bhd (OSKP) and PJ Development Holdings Bhd (PJD) fell sharply lower yesterday, as OSK Holdings Bhd’s (OSKH) takeover offers for the two developers, at RM2 per share and RM1.60 apiece respectively, were significantly lower than their recent market prices.

At the closing bell yesterday, OSKP slumped 29 sen or 12.8% to RM1.98, bringing its market capitalisation to RM478 million. PJD fell by 10 sen or 6% to RM1.57, giving it a market capitalisation of RM709 million. OSKH also fell by eight sen or 3.8% to settle at RM2, with a market capitalisation of RM1.9 billion.

The seemingly unattractive offer by OSKH, the flagship of Tan Sri Ong Leong Huat, raises the question of whether the 70-year-old veteran stockbroker could successfully merge OSKP and PJD under OSKH to create a first-tier property group with a combined market capitalisation of some RM3.3 billion.

However, on the flip side, market observers said lukewarm interests from OSKP and PJD minorities would enable Ong to significantly raise his current 41.2% stake in OSKH to nearly 55%. Such a scenario would tighten Ong’s grip on OSKH’s crown jewel in the form of a 9.9% stake in RHB Capital Bhd that is currently worth RM2.15 billion.

Under the proposed takeover offers announced on Wednesday, OSKH offered to acquire 73.6% of OSKP and 31.7% of PJD from Ong and family members for a total of RM584.7 million via an issuance of 292.33 million new shares in OSKH at RM2 each. OSKH also offered to acquire the remaining shares in OSKP and PJD from the minorities by offering them either cash or new shares in OSKH at RM2 each.

If the acceptance from the minorities is low, OSKH would issue the new shares predominantly to Ong, hence enabling him to significantly increase his holdings in OSKH.

It is likely that the minorities would warm up to the deal, not by taking the cash offer, but by accepting a share swap with OSKH. Owning shares in a larger, merged entity in OSKH would seem a better option than holding shares in a smaller, standalone entity, said market observers.

It is worth noting that while the RM1.60 offer price for PJD represents a steep discount of 37% to its net assets per share of RM2.54 as at June 30 this year, the issuance of OSKH shares at RM2 each was also sharply lower than its net assets per share of RM2.75. The RM2 offer price for OSKP is at a premium of 7% to its net assets per share of RM1.87, thus putting OSKP minorities in a more favourable position.

This article first appeared in The Edge Financial Daily, on October 17, 2014.