SMRT

[specuvestor]

alamak! like tat means this deal can be no-go!!!

okay! REJECT!!! Keep my pesky SMRT shares forever!

SOA, is a simpler all-or-none option, but with a higher risk of failure. Minority shareholders are definitely having a louder voice in scheme meeting.

One important point to note, based on latest disclosures, the illustrated PER range is 34.1x-64.2x. I reckon, rejecting an offer with PER of >34, doesn't sound a good idea to me 

------
Scheme Price represents implied FY2016 price-to-earnings ratio (“PER”) range of 34.1x –64.2x, based on illustrative range of SMRT Trains EBIT margins. Based on illustrative EBIT margin range of 0.9% –5.9% under the NRFF(2) assumptions, SMRT’s illustrative FY2016 PATMI is S$39.9 –75.2 million

(not vested)

Pesky is the profit cap and collar that Temasek say is asymmetrical. I would assume this cap and collar would apply to transport operators some way or other

Interesting Temasek to launch the SOA now instead of after stock goes 1.38. As a utility stock their share price is likely to go to 4% yield or more and Temasek is taking off minorities at about 2.5% ROI with $2b market cap. They have already took care of shareholders and of course their image.

[lanoitar]

When asked whether Temasek would bite had it been offered the exact deal (at S$1.68 apiece) for its SMRT block, Mr Chia (from Temasek) replied: "Yes. We consider that a fair price and will be prepared to sell our stake. If the offeror has the same objective (as us) to ensure the long-term sustainability of the rail system, then yes, we would be prepared to sell at that price."

I think the above pretty much sums up all the mystery. As it is, with all the accidents, breakdowns & commuters' discontent, SMRT is probably at a low in its morale. Why do you think Khaw needs to celebrate every seemingly trivial 100-days no breakdown achievement? He's cheering a very demoralized team.

With the NRFF, SMRT will face new wrath from minority shareholders, who will see their shares plunge if not for Temasek's buyout. Temasek did not wait for the stock to plunge first, becos its goal was to save SMRT from the blow of the market. Had it not done so, SMRT's morale will probably sink even further.

[money]

my guess is they are going to offer 1.60, then people make noise, they wayang wayang a bit, then raise to 1.68. The best defence is to say that profit margin from the rail operations is capped at 5%

haha they have decided to skip the wayang and go straight for buying out at 1.68. I wonder why i cant be half as good when i bet on toto

[GPD]

Did some digging. Information were taken from SMRT IPO prosepctus and their ARs.

TMS paid TA $1.2bil for the operating asset in 1998.
TMS received $12mil as dividend from SMRT in 1999 and 2000.
Before listing, SMRT paid $540mil to TMS as special div.
Since listed, TMS received about $700mil as dividend from SMRT.
So without accounting for depreciation of those cash flow throughout the years, TMS has received in total $1.264bil from SMRT. So TMS has already recovered their capital investment in SMRT.

SMRT offered $1.2bil for the remaining stake in SMRT and SMRT's NAV at FY16 is $916mil.

So looking from this direction, TMS is paying about 30% over SMRT 2016 NAV to take it private rather than the simple price-to-book of 2.5.

Anyway, based on my calculations, over 15 years, if SMRT hit the collar of
- 1.75% EBIT, they could still rake in $124mil of profit
- 3.5% EBIT, they could still rake in $0.5bil of profit
- 5.0% EBIT, they could still rake in $0.8bil of profit
- 6.0% EBIT, they could still rake in $1.0bil of profit

Very rough estimates with loads of assumptions!

[wsreader]

In SMRT and LTA's announcement, it was revealed that under the NRFF, the actual overall earnings are calibrated through an EBIT margin Cap and Collar mechanism and calibration is done via adjustment to the Licence Charge. However, no details were disclosed on exactly  how  the mechanism works. I have worked out the following table using what is known from the announcement so far.

Code:

                     Share of shortfall/excess
Composite            profit above collar (%)          Remark
EBIT Margin (%)      SMRT           LTA
----------------     -----          ---              ------------
<3.5                  50            50                50% sharing of shortfall, LTA's share is limited to the
                                                      quantum of the licence charge payable for the FY
3.5 to 5              -             -                 The Profit Collar
>5 to X1              95            5                 Excess profit shared via tiered structure (base of tier)
>X1 to X2          50<Y1<95         100-Y1            Excess profit shared via tiered structure
>X2 to X3             50            50                Excess profit shared via tiered structure (mid tier)
>X3 to X4           5<Y2<50         100-Y2            Excess profit shared via tiered structure
>X4                    5            95                Excess profit shared via tiered structure (top of tier)

Many analysts have assumed a hard 5% cap on future profitability in their models. This may underestimate future profitability because the tiered structure can allow profitability to exceed 5% up to the mid tier level (X3% in the table). Beyond X3%, there is increasing disincentive for SMRT to improve the EBIT margin further due to its decreasing share of excess profit.

[corydorus]

From the transcript i read, the impression is the offer is more a political pricing to accommodate the shareholders and the public.
A pricing that is fair to all.

The main point is the expected level of service of operation of the public, more staffs are required to keep the operation seamless.
So potentially they can go into losses for many years after.

[d.o.g.]

It seems that the terms of the Scheme of Arrangement (SOA) are not entirely clear to some of the posters in this thread.

Phillip Securities put out a note that summarizes it quite well:

Price:

The price is fixed, there will be NO increase.

Bidding Again:

Temasek cannot bid again for 1 year if the SOA fails.

Voting:

Temasek CANNOT vote. So of the non-Temasek shareholders WHO VOTE AT THE EGM whether in person or by proxy, at least 50% BY NUMBER and 75% BY SHARES need to approve.

====

So if there are 1,000 voting shareholders who control 200m shares, and 499 of them say no yes, the SOA fails. If 500 say yes but they control only 149.9m shares the SOA fails. If you don't show up and don't send in your proxy vote, you don't exist for the purpose of the vote.

The SOA will pass only if both conditions are met, in the example given this means at least 500 of the 1,000 shareholders must say yes, AND they must control at least 150m of the 200m shares at the EGM.

SMRT's latest annual report indicates that nobody owns more than 5% apart from Temasek itself. The top 20 shareholder list is mostly nominees, the largest individual holder is Quah Wee Lai with 3.6m shares or 0.24%. So I'd guess that the largest holders will be the funds and unit trusts, who are likely to vote for the deal. They hold large blocks but are few in number, so it comes down to the retail shareholder base.

Shareholders should keep in mind that if the SOA fails, Temasek is not obliged to bid again, or to offer the same price. What is definite is that SMRT's profit margin will decline from its current levels. Normally, a company that earns less money is worth less. Shareholders who block the SOA should keep this in mind. They will have nobody to blame but themselves if SMRT remains listed and the share price declines to represent a more "normal" earnings multiple for transport operators.

As usual, YMMV.

[ianphoon]

Smrt trading at 1.65 now, 3c below offer price
Does it mean confirm profits for people who buy at this price?
And why does it not trade at offer price?

[yeokiwi]

It seems that the terms of the Scheme of Arrangement (SOA) are not entirely clear to some of the posters in this thread.

Phillip Securities put out a note that summarizes it quite well:

Price:

The price is fixed, there will be NO increase.

Bidding Again:

Temasek cannot bid again for 1 year if the SOA fails.

Voting:

Temasek CANNOT vote. So of the non-Temasek shareholders WHO VOTE AT THE EGM whether in person or by proxy, at least 50% BY NUMBER and 75% BY SHARES need to approve. So if there are 1,000 voting shareholders who control 200m shares, and 499 of them say no, the SOA fails. If 500 say yes but they control only 149.9m shares the SOA fails. If you don't show up and don't send in your proxy vote, you don't exist for the purpose of the vote.

The SOA will pass only if both conditions are met, in the example given this means at least 500 of the 1,000 shareholders must say yes, AND they must control at least 150m of the 200m shares at the EGM.

SMRT's latest annual report indicates that nobody owns more than 5% apart from Temasek itself. The top 20 shareholder list is mostly nominees, the largest individual holder is Quah Wee Lai with 3.6m shares or 0.24%. So I'd guess that the largest holders will be the funds and unit trusts, who are likely to vote for the deal. They hold large blocks but are few in number, so it comes down to the retail shareholder base.

Shareholders should keep in mind that if the SOA fails, Temasek is not obliged to bid again, or to offer the same price. What is definite is that SMRT's profit margin will decline from its current levels. Normally, a company that earns less money is worth less. Shareholders who block the SOA should keep this in mind. They will have nobody to blame but themselves if SMRT remains listed and the share price declines to represent a more "normal" earnings multiple for transport operators.

As usual, YMMV.

Nice summary!
The probability that the privatization will fail is not low.
So, technically, shorting SMRT now is not a bad idea since the upper limit is 1.68.

[ValueMushroom]

Because the deal is not confirmed to go through yet.