CapitaLand already controls 66.5% of Ascott Group, which builds and operates serviced apartments across 23 countries in Asia Pacific, Europe and the Middle East, and is offering S$1.73 per share for the remaining stake. Assuming all outstanding options are exercised into shares that are then rendered, this will put the total purchase price at S$989.5 million ($690 million) and will value Ascott at about S$2.8 billion ($1.95 billion).
The offer price represents a 43% premium to AscottÆs latest market price of S$1.21 before it was suspended on Monday, and not surprisingly it sent the stock rallying yesterday. Ascott closed at S$1.71 û two Singapore cents below the offer price.
Analysts note that Ascott's stock is quite illiquid and poorly traded, which means the market price isnÆt able to capture its full value.
ôWhen that happens it is better to take it private and the fact that CapitaLand is prepared to pay up to do so shows that it sees good potential for the company,ö says one analyst.
Ascott's shares have been on a declining trend since the end of October and before yesterdayÆs spike were trading near their 12-month low. The company owns and operates close to 14,800 serviced residence units under three brands û Ascott, Somerset and Citadines - and has another 5,400 units under development.
CapitaLand's shares lost 5.4% during yesterdayÆs trading to a new 12-month low of S$5.91, although some observers say the decline is likely to have been at least partly the result of a catch-up with MondayÆs sharp drop in the Singapore market. CapitaLand was suspended from trading on Monday while the offer document was being prepared. However, it too has been under pressure over the past three months.
CapitaLand said it plans to fund the buyout through bank borrowings, which should be no problem since it has a low gearing. One analyst also notes that the company has enough cash to cover the entire transaction, but argues that it likely wants to preserve this for other purposes.
In a brief statement, CapitaLandÆs president and CEO, Liew Mun Leong, noted that the deal should result in increased operational efficiency and cost savings.
ôPrivatising Ascott will also enable CapitaLand to deploy capital and human resources seamlessly within the group. This is to better enable CapitaLand and its various strategic business units to combine their resources and expertise to exploit the business opportunities in the global real estate landscape,ö he said.
The offer is unconditional and CapitaLand said it does intend to delist Ascott. However, it can only make a compulsory acquisition of the remaining shares if shareholders with are least 90% of the remaining shares accept the offer. A formal offer document will be issued after the publication of AscottÆs 2007 results around January 25 and AscottÆs board of directors will make a recommendation to its shareholders on whether to accept the offer within two weeks of that.
The offer will have no impact on Ascott Residence Trust, which will remain a listed entity in its own right. CapitaLand indirectly holds about 46.59% of this real estate investment trust.
CapitaLand is being advised by DBS Bank.
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