Jardine picks opportune moment for historic buyout

Mandarin Oriental International

08/03/2021 03:03

(The author is a Reuters Breakingviews columnist. The opinions
expressed are her own.)
    By Jennifer Hughes
    HONG KONG, March 8 (Reuters Breakingviews) - Talk about a
deal for long enough and it will materialise. Jardine Matheson’s
 JAR.L   JARD.SI  $5.5 billion purchase of the shares it does
not already own in fellow holding company Jardine Strategic
 JSH.SI  has been expected almost since a fiddly ownership
structure was created in the 1980s. It dismantles an effort to
protect the Hong Kong group from raids by fellow tycoon Li
Ka-shing and others following its near-collapse in the
mid-1980s. A low valuation and cheap funding costs make this a
smart time for the storied hong, or trading house, to act.
    The $33-a-share offer by 189-year-old Matheson for the 15%
held by outsiders in Strategic, represents a 20% premium to the
latter’s last closing price before Monday’s deal. Although the
cross-holding has been successful in maintaining control by
Keswick family members, it created inefficiencies. This
combination allows the buyer to consolidate all the target’s
profits and it will also cancel the target’s own 59%
stakeholding in the buyer. Jardine Matheson’s earnings for last
year rise 7% in the new structure and its net gearing ratio will
almost treble. 
    The offer is opportune, catching Strategic at a relatively
low point. The holder of the group’s stakes in key listed
subsidiaries from Mandarin Oriental  MOIL.SI  hotels to
Indonesian conglomerate Astra  ASII.JK  has rallied from its
March 2020 nadir, when it traded at 6 times forecast earnings,
but its current multiple of 11 is still below long-term
averages. 
    Jardines has long been an exercise in hiding in plain sight.
The Hong Kong-headquartered entity is domiciled in Bermuda with
a primary share listing in London yet the bulk of trading is
done via its secondary one in Singapore. The result is a $42
billion company in Jardine Matheson that barely makes ripples –
which is how it likes it. This deal reduces complexity and was
enough to lift the buyer’s shares 10%. With the increasing
influence of mainland China, Hong Kong tycoons are no longer
each other’s top challenge. Jardine’s long overdue deal is nod
to that. 
    On Twitter https://twitter.com/JennHughes13
    
    CONTEXT NEWS
    - Singapore-listed Hong Kong-based Jardine Matheson on March
8 announced an offer to buy the 15% it does not own of Jardine
Strategic. The purchase of stock for $5.5 billion, will simplify
the group’s holding company structure. 
    - Jardine Matheson will pay $33 per a share, or a 20%
premium to the closing price on March 5. The deal unwinds a
structure developed in the 1980s to fend off attacks from fellow
tycoon Li Ka-shing.
    - Separately, Jardine Strategic owns 59% of Jardine
Matheson. Jardine Strategic shares rose almost 20% to $32.81 in
morning trade in Singapore following the announcement.     
    - For previous columns by the author, Reuters customers can
click on  HUGHES/ 
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    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Jardine Matheson announcement    https://links.sgx.com/FileOpen/JMH%20J.ashx?App=Announcement&FileID=651169
Conglomerate Jardine Matheson offers to buy rest of group unit
for $5.5 bln     urn:newsml:reuters.com:*:nL4N2L60L6
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Editing by Una Galani and Katrina Hamlin)
 ((jennifer.hughes@thomsonreuters.com; Reuters Messaging:
jennifer.hughes.thomsonreuters.com@reuters.net))