OCBC share price surged with Great Eastern offer

Lifetime Membership What a swashbuckling form! OCBC share price turned bullish following the bank’s announcement of voluntary unconditional offer for Great Eastern Holdings on 10 May 2024. Year-to-date, OCBC share price increased by about 11%. Question now is whether there is genuine intent of OCBC to acquire Great Eastern or just a cheap plot to boost OCBC share price, which had been lagging behind DBS shares in recent years?

Since 2021, I had been sharing my thoughts on the possibility of OCBC acquiring Great Eastern and the potential impact on OCBC share price. The articles can be accessed at the following:

OCBC share price in Great Eastern windfall!

OCBC share price to boom with Great Eastern sale?

OCBC share price to rocket with Great Eastern Holdings exit?

Given the voluntary unconditional offer, an SG Wealth Builder Member wrote in and asked if it is an opportunity to enter at the current Great Eastern share price. To oblige him, I will share my opinion on the voluntary offer by OCBC and also my take on whether its worth the risk to enter at current Great Eastern share price.

Being the oldest insurance company in Singapore and Malaysia, Great Eastern Holdings needs no introduction. The holding company of Great Eastern is none other than OCBC, which holds 88.4% stake in the insurer. This is actually the 3^rd time that OCBC tries to privatise Great Eastern. The venerable bank attempted 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 the current 88.4%.

The privatisation of GEH would be a significant, yet a low-hanging fruit for the CEO Helen Wong. She would have achieved a feat not accomplished by previous CEOs – David Connor and Samuel Tsien. As 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 due to the minority shareholders’ refusal to sell. Now, OCBC is offering the minority shareholders an amount of $25.60 per share. Should the minority shareholders bite the bait or hold out for a much better offer from OCBC? Is OCBC trying to low-ball minority shareholders or is the offer reasonable and fair?

This saga is especially intriguing because OCBC currently holds 88.44% of GEH, just a whisker below the 90% free float requirement and nearing the threshold for triggering the compulsory acquisition under the Section 215 of the Company Act. All these mean that the outcome may not be as straight-forward as many shareholders would envision to be. A lot of factors would come into play, especially when it comes to the valuation of Great Eastern shares. Therefore, shareholders should expect plenty of volatility for Great Eastern share price and OCBC share price in the coming weeks.

In my view, Great Eastern shares are worth $50, taking into consideration the Embedded Value of the insurance business and the value of the investment properties. Henceforth, I would think that OCBC is trying to low-ball minority shareholders with the voluntary offer. Read on to find out more about GEH’s Embedded Value and my assessment.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 not vested OCBC or Great Eastern shares at the moment. Whether OCBC share price of Great Eastern share price will surge or collapse has no impact on me. Thus, this article is not meant to induce readers to make any form of investment decisions.

OCBC share price versus Great Eastern share price

The key impetus for the voluntary offer must be the trashy form of Great Eastern share price, vis-à-vis OCBC share price in recent years. Due to this, management of GEH should be under pressure for the depressed valuation of Great Eastern shares in recent years. On 28 March 2024, SIAS queried the management on the significant divergence observed in share prices between Great Eastern and OCBC over the past three years. The lame response from GEH was “Share price is a function of market forces which are affected by multiple factors, many of which are not within the Company’s control”.

OCBC shares bottomed to a low of $8.35 during the global market crash in March 2020. Subsequently, the recovery from pandemic and aggressive interest rate hikes by US Federal Reserve led to the return of the form of OCBC share price that saw the counter rocketed 70%.

On the other hand, Great Eastern share price has declined considerably for the past five years, falling from $31 in May 2018 to the current $18.20 (as of 7 September 2023). In June 2023, Great Eastern share price even collapsed to a 5-year low of $16.90, which was even lower than the $17.30 mark seen in March 2020. The meltdown of Great Eastern share price since 2018 could be attributed to the insurer having to contribute a whopping RM2.0 billion to the B40 National Protection Scheme in lieu of complying with the 70% foreign ownership requirement imposed on its subsidiary, Great Eastern Life Assurance (Malaysia) Berhad.

If not for the voluntary offer from OCBC, it is likely that Great Eastern share price could continue to be in sluggish form.

Strategic value of GEH

In recent years, OCBC share price was seen as being in laggard due to the [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.]

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