What areas of law are pertinent to this case study? Describe what the identified areas of law cover, and explain how they are relevant to the issues raised in the case study. (500-600 words)
CapitaLands decision to privatise CapitaMalls Asia (CMA) in 2014, barely five years after its listing on the Singapore Exchange (SGX), came as a shock to many analysts. It started on 14 April 2014, when parent company CapitaLand moved to buy out CMAs remaining shareholders with an initial offer of S$2.22 per share. Dissatisfaction amongst the shareholders due to the low premium of the offer price over its IPO price quickly led CapitaLand to revise its offer to S$2.35 per share. Both offers were reviewed and confirmed by CMAs Independent Board Committee and Independent Financial Adviser to be fair and reasonable. By 5 June 2014, CapitaLand had crossed the 90% threshold needed for CMAs delisting, having acquired a 92.7% stake in CMA. However, the independence of the Board came into question given the connections that CMA Directors had with the parent company, CapitaLand. The objective of this case is to allow a discussion of issues relating to the conflicts of interest arising from directorships in parent and subsidiary companies; role of different players in a privatisation; methods and rules governing privatisations; and valuation of privatisation offers
The CapitaLand group
CapitaLands story began when DBS Land and Pidemco Land merged in November 2000. CapitaLand is one of Asias largest real estate companies with its focus on Singapore and China. CapitaLands listed real estate investment trusts (REITs) through its subsidiaries CapitaLand Singapore, CapitaLand China, CapitaLand Mall Asia and The Ascott Limited, are: Ascott Residence Trust, CapitaLand Commercial Trust, CapitaLand Mall Trust, CapitaLand Malaysia Trust and CapitaLand Retail China Trust1. Of CapitaLands subsidiaries, CapitaLand Mall Asia is one of the largest shopping mall developers, owners and managers in Asia by total value of property assets and geographic reach2.
[Note: In May 2015, the CapitaLand group went through a rebranding exercise by using the common CapitaLand name for its REITs, trust managers and subsidiaries. For example, CapitaLand Mall Asia was previously called CapitaMalls Asia. For the remainder of this case, the old names of the CapitaLand-related entities are used.]
The listing of CMA
Lim Beng Chee had started his career in CapitaLand in various senior positions, going on to become deputy CEO of CapitaMall Trust, CEO of CapitaRetail China Trust and eventually CEO of CapitaMalls Asia (CMA) in November 20083. Subsequently, CMA sought to raise funds through a public share issue. Within a year, CMA became Singapores biggest IPO in the last 16 years4.
Adieu to CapitaMalls Asia on the Singapore Exchange
Less than five years after it was first listed, CMA moved back towards being privatised. On 14 April 2014, its parent company CapitaLand offered to buy out CMAs remaining shareholders at S$2.22 per share5, a 4.72% premium above CMAs IPO price of S$2.126 and a 31.5% premium over the adjusted share price of S$1.79 on the previous full trading day of 11 April 20147. According to CapitaLand, the decision to take CMA private was to streamline CapitaLands operations in the integrated projects it carried out with CMA, to unlock shareholder value and to achieve synergies8.
Appointment of the adviser
Delistings or takeover offers present perplexing choices to minority shareholders. The advice of the company-appointed independent financial advisor is supposed to be a good guide but can end up controversial. Robson Lee, Partner at legal firm Shook Lin & Bok9
In response to CapitaLands offer, CMA formed an Independent Board Committee (IBC) to advise minority shareholders10. These directors bore no direct relation to anyone in CapitaLand or any of its other subsidiaries that would have rendered them incapable of providing independent opinions on the Offer. CMA also appointed Deutsche Bank AG (Singapore Branch) as its Independent Financial Adviser (IFA) in accordance with the Takeover Code, to advise the IBC by providing a professional and objective analysis on the fairness and reasonableness of any proposed offer11.
With regards to the offer price of $2.22, the IFA issued a fair and reasonable opinion given that the transaction had not resulted in a change in control12. Subsequently, the IBC reviewed and concurred with the advice of the IFA.
CapitaLands response to disgruntled shareholders
The response to CapitaLands Offer Price was lukewarm, with shareholders dissatisfied with the small premium of the offer price over its IPO price. Furthermore, shareholders demands for a control premium were unlikely to be met, considering how the offeror CapitaLands controlling stake in CMA effectively discouraged potentially higher offers from competing firms13.
By 9 May 2014, the possibility of CapitaLands privatisation of CMA seemed bleak with only a five percent increase in the total number of CMA shares acquired to date14.
Back Into The Fold: Capitalands Privatisation Of Capitamalls Asia
The Securities Investors Association (Singapore) (SIAS) then organised a closed-door discussion between shareholders and CapitaLands management15. Subsequently, on 16 May 2014, CapitaLand made an increased revised offer price of S$2.3516. Shareholders who had previously agreed to sell at S$2.22 per share had their price revised to the new price. The IFA again concluded that the revised offer of S$2.35 was fair and reasonable on 23 May 201417. 4 5
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