OCBC Offers to Buy Out Great Eastern Amid Minority Shareholder Complaints, But Is the Offer Fair?

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OCBC has announced an connection to bargain nan remaining 11.56% liking successful Great Eastern that it does not own, astatine S$25.60 per share. The woody will beryllium worthy S$1.4 billion.

The much absorbing mobility is, why now?

It’s not arsenic if OCBC lacked funds. In fact, its caller quarter’s nett profit was a grounds S$1.98 billion, much than nan S$1.4 cardinal connection to bargain nan remaining Great Eastern shares. In 2023, OCBC generated much than S$9 cardinal successful rate from its operations. So, nan rumor can’t beryllium a deficiency of costs and OCBC had nan expertise to return Great Eastern backstage each these while.

OCBC has besides been nan largest shareholder of Great Eastern, owning almost 90% of nan subsidiary. Great Eastern’s results person already been consolidated and reflected successful OCBC’s financials. Thus, it matters small whether Great Eastern is simply a 90% aliases wholly owned subsidiary. There are besides improbable to beryllium immoderate restructuring, leadership, aliases strategy changes moreover if Great Eastern is privatized. Essentially, it’s business arsenic usual.

In fact, I would reason that location isn’t immoderate inducement for OCBC to return Great Eastern private. Why ‘spend’ money to bargain retired nan number shareholders erstwhile OCBC already has effective power successful nan existent status?

OCBC has consolidated Great Eastern’s financials into its own

But I judge things changed erstwhile complaints from number shareholders grew louder this time.

In March 2024, an ex-remisier and shareholder of Great Eastern, Ong Chin Woo, representing a group of number shareholders, sent a missive to nan committee requesting to array 3 resolutions astatine nan AGM:

  • Resolution 1: To withhold 30% of Board of Directors’ fees until GEH’s stock value recovers to 0.8 times of its Embedded Value.
  • Resolution 2: To switch OCBC shares successful nan existent Executive Share Option Schemes (OCBC Share Option Scheme, OCBC Deferred Share Plan and OCBC Employee Share Purchase Plan) pinch GEH shares.
  • Resolution 3: To name an independent financial advisor to research options to heighten GEH shareholders’ value.

The committee consulted a lawyer and replied that ‘his petition does not fulfill each of nan requirements basal for a requisition for resolutions to beryllium moved astatine nan adjacent yearly wide meeting.’

In different words, it was a no-go. Minority shareholders wouldn’t spell to specified lengths unless location was a beardown impetus to do so, but regrettably, Ong’s concerns were dismissed.

I judge Resolution 2 is valid. I was appalled to study that Great Eastern’s cardinal managers person OCBC banal options alternatively of Great Eastern options. This is nan first clip I’ve travel crossed specified an unconventional reward structure.

The intent of rewarding guidance pinch banal options is to align their interests pinch nan company’s prosperity. If guidance performs well, nan banal value rises, and they benefit. But erstwhile guidance receives shares of different company, what behaviour are you incentivizing? It sends nan incorrect connection that your ain company’s shares aren’t bully enough.

Moreover, Great Eastern shares person only accrued 124%, including dividends, since 2006. In comparison, OCBC shares person risen 376% complete nan aforesaid period, offering doubly nan returns. The capacity divergence started pinch Covid successful 2020. This puts them successful a reliable spot because, indeed, nan managers are financially amended disconnected receiving OCBC banal options alternatively than their ain company’s.

OCBC banal has outperformed Great Eastern stock price

Ong met pinch nan Securities Investors Association (Singapore) (SIAS), and nan CEO of SIAS, David Gerald, sent a missive to nan committee of Great Eastern successful support of Ong, raising further questions astir Great Eastern’s performance. You tin publication nan afloat missive here.

Even though nan resolutions were not tabled, nan questions were raised during nan AGM, and a grounds is disposable here.

Regarding nan cardinal managers receiving OCBC shares, nan Great Eastern committee replied that ‘awarding OCBC shares helps to foster a “One OCBC Group” spirit.’ However, astatine nan aforesaid time, they stated that they aren’t successful a position to remark connected nan better-performing OCBC stocks compared to Great Eastern’s because they are not successful banking. Even though they don’t cognize overmuch astir banking, they were assured capable to reward managers pinch OCBC banal options. Contradictory?

An further logic fixed was that Great Eastern shares person debased liquidity, making it difficult for nan institution to behaviour stock buybacks to reward managers pinch Great Eastern shares.

But successful nan first place, if liquidity is low, why should Great Eastern enactment listed? It is perpetually undervalued, and fewer group want to waste and acquisition it. End nan symptom for everyone. OCBC should delist it, and finally, it’s doing so. This delisting offer, coinciding pinch nan caller number shareholders’ complaints, is excessively uncanny, and I judge it’s a measurement to resoluteness nan rumor and forestall it from getting retired of hand.

The connection value of S$25.60 represents a 36.9% premium complete nan past traded value of S$18.70. It’s besides 27.7% supra nan 5-year volume-weighted mean price, which makes it look for illustration a bully premium. However, nan embedded worth is nan existent measurement of an security company’s worth. Great Eastern reported an embedded worth of S$17,320 cardinal successful FY2023, which translates to a per-share worth of S$36.59. As such, nan connection is simply a 30% discount to Great Eastern’s existent value!

I judge OCBC should simply connection nan embedded value. It wouldn’t costs overmuch more, but it would prevention its estimation and that of Great Eastern, which are worthy acold much than nan monetary worth involved. Don’t time off a sour sensation among nan number shareholders and fto this saga escalate.

Disclaimer: I americium neither an OCBC nor a Great Eastern shareholder, and I americium not a financial advisor. I americium simply stating my views connected nan matter arsenic I personally felt immoderate things were unjust.