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Thursday, January 26, 2012

SP Setia at 6-month high

PETALING JAYA: SP Setia Bhd rose six sen, or 1.5%, to close at RM3.94, its highest level in almost six months and one sen short of the revised offer price jointly proposed by its president and chief executive officer Tan Sri Liew Kee Sin and Permodalan Nasional Bhd (PNB).

Meanwhile, analysts have hailed the revised takeover offer as a “win-win” deal for all parties as it would enable Liew to stay at the helm of the property developer with full control over the next three years.

“This is close to our best-case scenario where there is incentive for top management to stay on and take SP Setia to greater heights. It is a win-win situation for all parties and a share price catalyst,” CIMB Research analyst Terence Wong said in a note to clients.

Liew’s commitment to stay on in SP Setia has been viewed positively by analysts.

SP Setia had on Friday notified Bursa Malaysia about the revised offer, which raised the offer price by five sen each for the shares and warrants to RM3.95 and 96 sen, respectively.

Liew, PNB and SP Setia would also enter into a management agreement for Liew to remain in his current position for three years following the close of the revised offer.

Among others, Liew would continue to oversee and manage the operations of SP Setia within the ordinary course of its business and enter into contracts or arrangements for and on behalf of the company.

As a joint offeror, Liew is not allowed to sell his 8.6% direct shareholding of 158.2 million shares, or 8.6% stake, in SP Setia, but he would be given a put option to sell the shares to PNB in tranches over three years at an exercise price of RM3.95.

Under the terms of the put option, Liew can choose to sell his stake to PNB at RM3.95 or in the open market at the then prevailing market price, which thus acts as an incentive for him to continue to grow the value of the company.

However, Liew's wife, who has a 2.3% stake in SP Setia, will be accepting the revised offer.

PNB and its related parties currently hold 38.6% of SP Setia while Liew has a direct and indirect stake of 10.9%, which adds up to a combined 49.5% interest.

“We view positively Tan Sri's (Liew) commitment to stay on and retain his direct stake without getting any premium even though he will only be allowed to exercise the put option gradually over three years.

“This signals his commitment and confidence that he can take SP Setia to the next level and add value to the company and share price,” CIMB Research said.

Kenanga Research said in a report that the slightly higher offer price is a show of good faith to minority shareholders, adding that SP Setia would have more bargaining chips to bid for government land with the backing of a shareholder like PNB.

As PNB intends to retain the company's listing status, RHB Research Institute noted that post-takeover, the joint offerrors might have to pare down their stakes via a placement exercise to maintain the stock's mandatory 25% free float.

Kenanga Research said investors with a 12-month view should accept the revised offer as there might be cheaper entry points when the stock succumbed to an expected downtrend in the property sector. However, it said longer-term shareholders might want to stay invested as liquidity could tighten up in the future, preventing substantial accumulation.

By The Star

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