2 conditions for UOL's plan to delist Pan Pacific

UOL's exit offer is S$2.55.

According to CIMB, UOL plans to offer S$2.55 to delist Pan Pacific Hotels Group (PPAC). This implies a 9% discount to its FY12 RNAV and 9% premium to its last traded price. UOL owns 81.6% and UOB owns 7.99% of the regional hotel operator.

Here's more from CIMB:

We expect UOB to accept the offer, and if so, the rest of the MI should also do so given the low free float. While upside to UOL’s RNAV is not expected to be big, this move is another step in consolidating the assets under UOL. Management has no plans for a REIT yet but we will not dismiss this possibility in the future.

Terms of the PPAC offer
UOL plans to offer S$2.55 to delist Pan Pacific Hotels Group (PPAC), implying a 9% discount to its FY12 RNAV of S$2.64 and a 9% premium to its last traded price of S$2.34.

The exit offer will be conditional on: 1) the approval of at least 75% of the total number of issued shares held by the shareholders present and voting; and 2) the delisting resolution not being voted against by 105 or more of the total number of issued shares held by shareholders present and voting.

Rationale and our views
The management of UOL says that the exit offer will allow minority shareholders an opportunity to realise their investments, which may not be readily available due to the low trading liquidity of the shares.

This exercise will also help the group save on compliance and listing costs given that PPAC has no need for access to capital markets, and allow greater management flexibility to review operations.

These reasons are valid, but have also been the same reasons for this move in the past. The question we have is: Why now? Management was vague in clarifying this, saying that there will always be issues on timing even if the group had done this earlier.

In our view, this latest move to delist PPAC is yet another step by management to consolidate the property assets under the UOL group, namely UOB’s stakes in property vehicles.

We note that UOL has, in recent years, been building up its stakes in UIC, first in 2009 through a General Offer for UIC, and in 2010 when it acquired UOB’s 9.7% stake in UIC.

UOB currently owns 7.99% of PPAC, while UOL owns 81.6%. We expect UOB to accept and if so, the rest of the MI should follow suit given the low free float.

Upside to UOL’s RNAV from this move is not expected to be big, though a cleaner structure could serve to narrow UOL’s RNAV discount. Management has no plans for a REIT yet but we will not dismiss this possibility in the future.

If PPAC taken private, we believe the market would naturally speculate that UIC/SingLand will be next in line. On this issue, the management of UOL was reluctant to comment, but said that it will continue to accumulate UIC shares in the market. This event remains the longer term option value for investors, in our view.