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Henderson makes $42.86b offer for Towngas control

Victor Cheung

Thursday, October 04, 2007

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Henderson Land Development (0012), controlled by tycoon Lee Shau-kee, proposes to pay market value only to gain control of Hong Kong and China Gas (0003), or Towngas, the sole supplier of piped gas in Hong Kong.

The HK$42.86 billion offer for the 39.06 percent stake in Towngas held by subsidiary Henderson Investment (0097) was lauded by analysts as positive to the group's earnings. The market also welcomed yesterday's announcement as shares of Henderson Investment rose 8.37 percent to close at HK$19.20, while Towngas shares jumped 8.95 percent to HK$13.98.

Henderson Land fell 3.65 percent to HK$59.40.

However, investor and shareholder activist David Webb slammed the proposed Towngas deal as "unreasonable" since it provides no premium to minority shareholders of Henderson Investment, who have a 30.73 percent stake in the subsidiary.

The parent would be getting too much of a bargain to acquire a monopoly at its proposed price, Webb told The Standard. "Private equity firms can offer a much higher price than this," he said, calling on the minority shareholders to vote down the deal.

To pay for the Towngas stake, Henderson Land, which holds nearly 68 percent of Henderson Investment, proposes to issue HK$39.15 billion worth of entitlement notes, convertible to 636.9 million new Henderson Land shares.

But since the parent or Lee personally controls about 69.3 percent of Henderson Investment, the number of Henderson Land shares distributable to minority shareholders of Henderson Investment will only be 204.1 million.

Henderson Land also proposes to distribute HK$3.71 billion in cash, but would actually only need to splash out HK$1.19 billion to minority shareholders of Henderson Investment.

Each Henderson Investment share would be entitled to a 0.209 share of Henderson Land, together with HK$1.21 if the share premium reduction is approved. Henderson Investment would gain HK$27.87 billion from the Towngas deal.

Macquarie said the reshuffle will benefit Henderson Land shareholders as it will streamline its control of Towngas and improve recurring earnings profile, but the market has already factored in the news.

What remains in Henderson Investment after the latest deal are a toll road and a toll bridge in the mainland, which have net asset value of HK$0.656 per share, according to Merrill Lynch.

Webb said the Henderson group is using a loophole to facilitate the deal to avoid a privatization motion, which would have required at least 75 percent approval for the deal, along with less than 10 percent rejection.

But now, Henderson Investment is virtually "privatized" in terms of asset transfers, which only require approval from a simple majority.

Webb stressed the need to amend the voting rules by requiring very substantial transactions to obtain the same level of approval as a privatization motion.


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