E&O ... Aug11

E&O owns some of the choicest parcels of land in Penang and Johor. It does not have a substantial shareholder with an outright majority. And some of its shareholders – who together hold more than 20% equity interest – are willing to divest their stakes in the company.

But a corporate exercise would depend on how well the acquirer carves out the fragmented shareholding to secure a major block that can be used to take over the company.

Sources say shareholders with more than 20% equity interest in the company are willing to cash out at a slightly less than rm2.50 a share, but the not the largest shareholder, Datuk Tham Ka Hon. Some of the major shareholders are willing to sell at about rm2.40 apiece, but Tham wants a higher price.

Tham holds 15.7% stake while Singaporean CKG Investment Holdings Ltd holds 11.7%. Puan Sri Nik Anida holds 11.8% stake while ECM Libra holds 5.4% stake. Together these strategic shareholders hold 45% equity interest in E&O.

Although Tham is seen as the face of E&O, the company is run by professional managers led. This coupled with the company’s fragmented shareholding, raises the possibility of a new shareholder coming in. Sources expect the emergence of a strategic investor with more than 20% equity interest.

Assuming an entity buts up the stakes of GKG Investment and Nil Anida, it would not trigger a MGO but it would be good enough to spark demand for shares in the property developer. Anybody coming in with less than 30% would start mopping up more shares to hit the 32% threshold.

Another source says if such a situation arises, ECM Libra may also dispose its block as it is a strategic investor. It should be noted than ECM only emerged as a substantial shareholder not long ago and is likely to exit at a good price.

It is learnt that GKG, a long time shareholder of E&O, is willing to cash out at lower price than what is being sought by Tham. Nik Anisa’s family could also dispose its stakes at about the same price. But holding them back is their long term relationship with Tham

He has a good relationship with the other shareholders and they would not sell without giving Tham ample opportunity to work out a deal to meet their requirements. If they sold without Tham disposing its interest, it would leave him in difficult position. So it is likely that all the strategic shareholders will exit the company triggering a MGO for E&O.

Sources say major shareholders of SP Setia Bhd, Malaysia's biggest developer, plan to buy a strategic stake in property and hospitality company Eastern and Oriental Bhd (E&O).
Shareholders of SP Setia had made overtures with certain shareholders of E&O, who may have included Temasek Holdings (Pte) Ltd director Goh Yew Lin.

SP Setia's three biggest shareholders currently are Permodalan Nasional Bhd with a 32.9 per cent stake, the Employees Provident Fund with a 14.47 per cent interest, and SP Setia president and chief operating officer Tan Sri Liew Kee Sin, with 11.96 per cent.

As at July 30 2010, Singapore's G.K. Goh Holdings Ltd owned 13 per cent of E&O.

E&O managing director Datuk Tham Ka Hon and spouse Datin Chua Cheng Boon collectively own about 17 per cent of the company.

Liew did not confirm or deny if indeed SP Setia is interested in buying E&O. SP Setia is always looking for new acquisitions including land deals and strategic stakes. Management is not in acquisition talks with any party at the present time and cannot speak on behalf of the shareholders.

Funding the takeover of E&O will not be cheap, but it is feasible. The company has a market cap of rm1.42 billion and a share base of 910.7 million.

Of its existing landbank, its largest tract in the Kl;ang Valley is the 309.5 acre in Ampang area which is estimated to be worth rm400 million versus book value of r,106 million.

E&O is known for its 20 story Dua Residency developments in Jln Tun Razak, KL.

Also notable is its 50% stake in the 210 acre Wellness City Development in Iskandar Malaysia. The project is a JV with Temasek Holdings and Khazanah Nasional Bhd.

However, its dominance in Penang that makes it such an attractive target for bigger players like SP Setia.

In Penang, besides development, E&O is also in the hospitality and lifestyle business. Its E&O Hotel is considered landmask on the island while its Lone Pine Hotel is well known.

The prime attraction is its Seri Tanjung Pinang Project, which stretches over 980 acres of reclaimed land. The first phase of the project is estimated to fetch rm4 billion in GDV while the second phase is expected to generate three times that amount.

A major drawback of the Seri Tanjung Pinang project is the huge reclamation costs involved. However, E&O has the required approvals to get the project off the ground. The company could undertake a fundraising exercise or enlist a JV to start the reclamation work.

Given the increasing land values in Penang, it certainly makes sense for other developers to want to take over E&O. But they would first have to deal with the company’s fragmented shareholding.