More to Hopewell plan than meets the eyeBusiness | Ivan Tong 7 Dec 2018
Hopewell Holdings (0054) resumed trading yesterday after plans were revealed to take the firm private for HK$38.8 per share, 47 percent more than last Friday's closing price.
Its shares surged by as much as 32 percent in morning to HK$34.9 before settling to close 30.6 per cent up at HK$34.55.
The gap between the market price and the proposed privation price is still great, which shows that investors may fear that the privatization plan could eventually fail and do not want to take the risk.
Many investors know that the prices of most Hong Kong property shares are lower than their implied values.
Hopewell has a wealth of assets and a lot of properties in Wan Chai but its market value is little more than HK$20 billion.
As at the end of this September, Hopewell Holdings' net asset value was as much as HK$ 60.21 per share, 127 percent higher than last Friday's close and 35.6 percent higher than the proposed privatization price.
There are a few main points about this privatization plan that are worth considering.
First, Thomas Jefferson Wu, the son of group chairman Gordon Wu Ying-sheung, is not the offeror of the plan. If Gordon Wu privatizes the company successfully, Jefferson Wu's share will be written off and he will receive cash as other minority shareholders.
Secondly, the plan will be not easy to pass at the shareholders meeting as guidelines require at least 75 percent of shareholders to support it and less than 10 percent of shareholders to vote against the privatization.
Thirdly, Although Thomas Jefferson Wu is not the offeror, the regulatory authority would take the father and son relationship into consideration while vetting the proposal. This means the privatization has to be weighed against the need to protect the interests and rights of small shareholders.
The most important among these points is that the suggested privatization price is lower than the expectation and market seems to lack the confidence that the plan will push through successfully.
Meanwhile, we cannot exclude the possibility that the largest shareholder just wants to test the waters with this plan, and then launch another privatization at a higher price in the future.
Rumor has it that Jefferson Wu has been at odds with Gordon Wu for a long time.
The most recent evidence of this is that when Gordon Wu shared his privatization plan with the top management team at his 83rd birthday party a few days ago, Jefferson Wu was not present.
If you add that to the fact that Jefferson Wu is not the offeror in this privatization plan, it would appear that these rumors are not groundless.
Southeastern Asset Management, an overseas funding company, holds close to a 7 percent stake in Hopewell Holdings and its support would be the key to the success of the plan.
But then again, investors would also question why would Jefferson Wu join hands with the asset management company if he against the privatization?
So what are the benefits of the privatization for the elder Wu?
If the plan succeeds, it would benefit the largest shareholder, as Hopewell Holdings' share price has always stagnated at low levels.
But even if the plan fails, the market will sit up and take notice of Hopewell's real value and hope that the largest shareholder will launch another privatization bid in the future.
Last December, Hopewell Holdings sold Hopewell Highway Infrastructure (0737) to a Shenzhen group, netting a windfall of nearly HK$10 billion, and then distributed a special interim dividend to its shareholders.
This shows that Gordon Wu has done his homework well and the privatization plan will be "all-win" for him.
Ivan Tong is Editor in Chief of The Standard.