SIME (4197) : Sime Darby Bhd - Plans takeover of SP Setia?
Target RM9.58 (Stock Rating: HOLD)
News today that a high-level initiative has begun for a proposed Sime Darby takeover of SP Setia does not come as a total surprise as there has been earlier speculation on the subject. We are neutral on the news, pending details and confirmation from the parties involved. Our initial assessment is that the potential takeover would be a significant one for Sime and will be earnings accretive for the company. However, this may be offset by concerns over its growing exposure to the property sector. We maintain our Hold rating due to Sime’s otherwise unexciting near-term earnings prospects.
Sime’s otherwise unexciting near-term earnings prospects.
What Happened
The Star newspaper, citing unnamed sources, today reported that a high-level initiative has begun for a proposed takeover of SP Setia (SPSB MK, Hold, RM3.35) by Sime Darby’s property arm. According to the report, the proposal was mooted by a few senior management of SP Setia about two months ago and conveyed to the top brass of Permodalan Nasional Bhd and Sime Darby. PNB is the major shareholder of both SP Setia and Sime Darby. So far, there has been no resistance to the proposal. “It is also not something out of the blue as the subject had been brought up by the dominant shareholder before. This time it is coming from the key people in SP Setia.” the paper quoted an unnamed source as saying.
What We Think
This news does not come as a total surprise to us as there has been earlier press report about the possibility. In April 2014, The Star reported that PNB may merge its big property firms, SP Setia, Island & Peninsular and Sime’s property business. Sime had earlier indicated that it was not aware of the merger plans. It is unclear at this juncture if things have changed. But if Sime does acquire SP Setia, it will have to fork out RM8.5bn for a 100% stake, based on SP Setia’s last closing price, representing a sizable 29% of Sime’s total equity. The price tag is also higher than its offer to acquire NBPOL at around RM5.6bn. Apart from a common major shareholder in PNB, both Sime and SP Setia have jointly invested in the successful Battersea project in London with 40% stakes each. EPF owns the remaining 20%. We are neutral on this acquisition which will boost Sime’s property earnings and gearing ratio. Pending finer details of the proposal, our rough estimates see the acquisition as being 5% earnings accretive to Sime if it acquires SP Setia at a 10% premium to its closing price.
What You Should Do
We do not expect this news to significantly move Sime’s share price as it is unclear, at this stage, if the high-level initiative will lead to an actual takeover.
Source: CIMB Daybreak - 13 January 2015
Target RM9.58 (Stock Rating: HOLD)
News today that a high-level initiative has begun for a proposed Sime Darby takeover of SP Setia does not come as a total surprise as there has been earlier speculation on the subject. We are neutral on the news, pending details and confirmation from the parties involved. Our initial assessment is that the potential takeover would be a significant one for Sime and will be earnings accretive for the company. However, this may be offset by concerns over its growing exposure to the property sector. We maintain our Hold rating due to Sime’s otherwise unexciting near-term earnings prospects.
Sime’s otherwise unexciting near-term earnings prospects.
What Happened
The Star newspaper, citing unnamed sources, today reported that a high-level initiative has begun for a proposed takeover of SP Setia (SPSB MK, Hold, RM3.35) by Sime Darby’s property arm. According to the report, the proposal was mooted by a few senior management of SP Setia about two months ago and conveyed to the top brass of Permodalan Nasional Bhd and Sime Darby. PNB is the major shareholder of both SP Setia and Sime Darby. So far, there has been no resistance to the proposal. “It is also not something out of the blue as the subject had been brought up by the dominant shareholder before. This time it is coming from the key people in SP Setia.” the paper quoted an unnamed source as saying.
What We Think
This news does not come as a total surprise to us as there has been earlier press report about the possibility. In April 2014, The Star reported that PNB may merge its big property firms, SP Setia, Island & Peninsular and Sime’s property business. Sime had earlier indicated that it was not aware of the merger plans. It is unclear at this juncture if things have changed. But if Sime does acquire SP Setia, it will have to fork out RM8.5bn for a 100% stake, based on SP Setia’s last closing price, representing a sizable 29% of Sime’s total equity. The price tag is also higher than its offer to acquire NBPOL at around RM5.6bn. Apart from a common major shareholder in PNB, both Sime and SP Setia have jointly invested in the successful Battersea project in London with 40% stakes each. EPF owns the remaining 20%. We are neutral on this acquisition which will boost Sime’s property earnings and gearing ratio. Pending finer details of the proposal, our rough estimates see the acquisition as being 5% earnings accretive to Sime if it acquires SP Setia at a 10% premium to its closing price.
What You Should Do
We do not expect this news to significantly move Sime’s share price as it is unclear, at this stage, if the high-level initiative will lead to an actual takeover.
Source: CIMB Daybreak - 13 January 2015
