In what analysts described "a dream come true," Henderson Land Development (0012) has finally gained direct control of Hong Kong and China Gas (0003), better known as Towngas.
Shareholders in Henderson Land Development subsidiary Henderson Investment (0097) gave their blessing on Friday to Henderson Land's HK$45.98 billion offer for its 39.06 percent stake in Towngas.
The turnout rate was 18 percent and 96.62 percent of shares represented voted for the deal.
"Shareholders have got the benefit they deserve, and I am happy that my duty has been accomplished," Henderson Land vice chairman Colin Lam Ko-yin said.
On October 3, Henderson Land made a zero premium/discount offer of 0.209 of its shares and HK$1.21 in cash for each Towngas share owned by Henderson Investment.
Market reaction to the initial offer was mixed. While some investment banks said the transaction helped unlock hidden value in Towngas, corporate governance advocate David Webb slammed the offer as being too cheap for the purchase of a monopoly - Towngas is the sole piped gas supplier of Hong Kong.
In a crucial development on November 7, Henderson Land said it had secured the support of US-hedge fund Elliott Capital Advisors. The fund's 9.59 percent stake in Henderson Investment represented 30.8 percent of independent voting shares in Towngas. Henderson Land strengthened its offer by increasing the per- share cash price by 7.59 percent to HK$2.24.
Henderson Land has been keen on delisting Henderson Investment, in which it owns a 67.94 percent stake, but shareholders have twice rejected offers - once in 2003 and again last year.
Maquarie analyst Eva Lee said it was "the best of times for the transaction to happen," given a strong uptrend in the real estate market.
But Lam, the mastermind behind the deal, said all parties would have benefited most if it had been closed in 2003 as Henderson Land offered a higher premium. "If Henderson Investment shareholders had taken the cash and invested in other equities at the time, for example Sino Land (0083), the return would be manifold," he said.
Henderson Land chairman Lee Shau-kee has repeatedly expressed optimism for Towngas's prospects, which Lam reiterated again yesterday when he said the company would benefit greatly from mainland demand for piped gas due to continuing urbanization.
UBS analyst Eric Wong said closing the buyout had removed uncertainty surrounding Henderson Land. Henderson Land has said it aims to expand its China landbank from 120 million to 200 million square feet next year.
Lam said that Henderson Land, in distributing HK$2.19 billion to minority shareholders under the deal, will have no need to sell shares to fund its expansion.
"To pay for our expansion in China, we could raise our gearing from 12 percent to as much as 25 percent ... we could raise tens of billions of dollars," he said. "Towngas will also provide solid recurring income to back up Henderson Land's China expansion."
Because of the assets removed under the Towngas deal, Henderson Investment shares will fall around HK$1 on December 17 from Friday's HK$17.50 closing price.