re: tuan sing offers 1.10....article YESTERDAY'S $285 million...

re: tuan sing offers 1.10....article YESTERDAY'S $285 million bid for Grand Hotels Group by its largest shareholder, the diversified Singapore-based group Tuan Sing Holdings, represents a stunning somersault for Tuan Sing's chief executive David Kay Tuan Lee.
Until yesterday, Kay, and another Tuan Sing representative, Tan Enk Ee, were members of the GHG board's defence committee in relation to the unwanted takeover bid from Mulpha Australia, and Kay was part of the board's unanimous decision to put an alternative proposal to GHG shareholders - an orderly realisation of the company's assets and wind-up, as a means of unlocking much greater value than the Mulpha offer-price.

Until yesterday, one of the six-man board, Michael Maxwell, had been excluded from board deliberations in relation to the Mulpha bid and the asset-sale proposal because of a possible conflict of interest.

Maxwell was a nominee of Babc & Brown, which had entered into a pre-bid acceptance agreement under which Mulpha put its foot on 14.99 per cent of GHG that was held by B&B and associates.

As of yesterday morning, Maxwell was back in the fold (Mulpha has conceded defeat, its bid will close next Tuesday and the agreement with B&B has been terminated), and Kay and Tan are on the outside looking in.

Mulpha offered 85c a share, which was a premium of only 3.65 per cent to GHG's pre-bid price and a whopping 36 per cent discount to the company's asset-backing as at June 30, of $1.33 a share. Not surprisingly, the board recommended rejection and flagged that it would sell the company's hotel assets, rather than support such an undervalue.

GHG's share price climbed to around $1.15. Late last month, GHG confirmed that, as no adequate rival offer had emerged, it would seek security-holders' approval to undertake an orderly wind-up, and return the proceeds to unit-holders. GHG's share price rose to around $1.25.

In deciding on the wind-up, the defence committee took advice from its corporate adviser, Merrill Lynch, and from property experts. As a result, GHG was confident that the proceeds would at least realise book-value. That's almost certainly conservative.

Under the terms of its borrowings, GHG must obtain annual revaluations of its principal assets. The valuations are therefore for banking purposes, rather than for sale purposes, and are primarily to give the bankers comfort that there are sufficient assets to support the borrowings. Valuations intended for sale would almost certainly be higher, perhaps significantly higher.

Moreover, this year's revaluations did not include GHG's Hyatt Regency in Adelaide because a new management agreement was under negotiation at the time.

It's now 15 months since the Hyatt Regency was revalued and its value would almost certainly have risen in that time.

It's therefore likely that an orderly realisation would generate proceeds well north of the stated NTA. A premium of say, 10 per cent to 20 per cent, would produce a range of $1.46 to $1.59. Allowing 7-8c a share for the costs of the asset realisation would produce a price in the range of $1.40 to $1.50 a share.

Yet, Tuan Sing, which has long held 25 per cent of GHG, is offering only $1.10 a share, which is 15c, or 12 per cent, below the present share price of $1.25 and 23c, or 23 per cent, below the stated NTA. It's an even greater discount to the price which an orderly disposal is likely to achieve.

Kay and Tan, as members of the defence committee, were involved in the deliberations which resulted in the decision to seek an orderly disposal of assets and were privy to the information on which that decision was based.

The board decision was unanimous and reports of the proposed sale understandably concluded that Tuan Sing supported the proposal.

The first indication that something unusual was taking place came two days after the GHG announcement, when Tuan Sing issued a "clarification" to the Singapore Stock Exchange. Tuan Sing said it didn't have sufficient information to enable it to assess the merits of the asset-realisation proposal but would expect that it would incur substantial expenses, such as capital gains tax, employee redundancies, as well as fees to financial and legal advisers and estate agents.

Tuan Sing would also need to understand whether all of GHG's assets could be realised at book-value, and until more detailed information was released by GHG, Tuan Sing reserved its position on the matter. It's unclear whether Kay shares Tuan Sing's reservations and, if so, why he didn't oppose, or at least abstain from, the GHG board decisions to sell.

Tuan Sing yesterday played up its concerns. It pointed out that, to be tax-efficient, the sales would need to be completed and the GHG trusts vested within the same financial year, that is by next June 30. It suggested that sales could take at least nine months and pressure to meet that deadline could cause "compromised selling prices". And it argued there would be material costs involved in the sales and liquidation process.

While it recognised the offer price was below-market, it considered that recent buying was indicative of a "balanced market" in GHG securities, as one institution accounted for approximately 60 per cent of the trade over the past month. (UBS has built a 15 per cent stake, largely on behalf of its properties securities fund.)

The offer of $1.10 a share was an alternative which provided "fair and certain" value.

But the discount to expected asset-disposal proceeds is so wide that it's unlikely the bid will be supported by target-holders, particularly institutional holders.

The GHG board yesterday advised shareholders to take no action at this stage. The board also said it still intended to seek security-holder approval for the orderly liquidation, so it doesn't take much reading of the tea leaves to divine that it will recommend rejection.

The board also said that, since it announced the decision to proceed with the assets-sale, it had received a number of unsolicited approaches from parties interested in either acquiring GHG, or its hotels - in fact, Mulpha is one party that has expressed interest in some of the company's assets.

GHG was allowing interested parties to conduct due diligence.

While Tuan Sing can be expected to now vote against an orderly liquidation, it's thought that B&B favours the proposal. If UBS is also in favour, that would amount to 30 per cent, which would more than offset Tuan Sing's 25 per cent stake.

The top 20 shareholders own 80 per cent of the company, which means that a variety of institutions own 25 per cent of the capital - and they will determine the outcome.