Chinese New Year Special Offer! Will it be 3rd time lucky for OCBC Bank? The venerable bank tried to privatise Great Eastern Holdings (GEH) unsuccessfully in 2004 and 2006. In the 2006 attempt, OCBC Bank managed to raised its stake in Great Eastern to 87.1%. Since then, OCBC Bank has steadily increased its stake to 87.91% as at 31 March 2021. If a privatisation does materialise, what would be the impact on OCBC share price (SGX: O39)?
Under SGX Rule 723 of the Listing Manual, listed companies must ensure that at least 10% of their issued shares must be held by the public. As OCBC currently holds about 12% of Great Eastern, the bank would just need to acquire only 2% more of Great Eastern shares in order to trigger the mandatory delisting requirement. The impetus for the acquisition should be the ailing OCBC share price.
Year-to-date, OCBC share price has increased by a mere 12.9%. In contrast, DBS share price has surged by a whopping 26.7% year-to-date. Notably, the explosive surge in DBS share price came after its acquisition of 13% stake in Shenzhen Rural Commercial Bank in April 2021 and India’s Lakshmi Vilas Bank in November 2020. The acquisitions signalled the growth initiatives of DBS and helped to diversify revenue sources. Hence, it is not surprising that DBS share price had been on fantastic form throughout the year. Over at OCBC, the lack of major acquisitions for the past two years coincided with the tepid form of OCBC share price.
To be fair to OCBC, CEO Helen Wong has just taken over the CEO position in April this year. So it would not be realistic for OCBC to mount an acquisition of a foreign bank so soon. However, the privatisation of GEH could be a significant, yet a low-hanging fruit for the CEO. She would have achieved a feat not accomplished by previous CEOs – David Connor and Samuel Tsien. Given that Great Eastern has evolved to become a crown jewel for OCBC, the acquisition is definitely a strategic move. It would also cement OCBC as a leading financial powerhouse as both DBS and UOB do not own any insurance companies.
The main reason for the 2004 and 2006 takeover flops was probably because the minority shareholders refused to sell. The case may be different now if OCBC tabled an offer comprising of OCBC shares and cash component. At current trading level of OCBC share price, the offer should be attractive enough for the Great Eastern minority shareholders.
Note that this is an opinion article and not meant to be a financial advice. Please do your due diligence or engage financial advisors before investing in the stock market. I am vested in this counter, so my views on OCBC share price may be biased.
OCBC share price in state of flux
For the past few months, I have been perturbed by OCBC management aggressive share buybacks. Based on the SGX filings, OCBC has been [This is a premium article. The rest of the content is blocked and can be accessible by SG Wealth Builder Members only. To read the full content, please sign up as member.]Chinese New Year Special Offer!
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