Jardines restructuring sends mixed signals to investors

Jardine Matheson’s restructuring sends mixed signals to pushy investors. The 189-year-old group is dismantling a structure that has protected founder William Jardine’s descendants for decades. Doing so reduces its conglomerate discount, but also indicates a willingness to change, writes Jennifer Hughes of Reuters.

The larger of the two holding companies is buying the 15 percent it doesn’t own in sister Jardine Strategic for US$5.5 billion. It unwinds a cross-holding framework created in the 1980s to ward off corporate raiders. The Keswick family ultimately will own 43 percent of Jardine Matheson, which will control developer Hongkong Land, retailer Dairy Farm International, Mandarin Oriental hotels and Southeast Asia-focused Jardine Cycle & Carriage.

This big step suggests less of a perceived threat from outsiders. The market reaction helps too. Majority stakes in the four publicly traded companies tally US$17 billion. Two smaller holdings in Zhongsheng and Greatview Aseptic Packaging are now worth a combined US$3 billion. Putting unlisted Jardine Pacific and Jardine International Motors each on a multiple of 12 times CLSA’s earnings forecasts adds another US$4 billion.

Back out corporate cash and the implied net asset value is around US$22 billion, or a mere 10 percent discount to the post-deal valuation. Before, it was closer to 25 percent.

That narrowing could deter calls for sweeping changes.

Peer Swire Pacific trades at a 50 percent discount to net asset value, according to Citigroup analysts, but also is safeguarded by a dual-class share structure. There are other reasons to target Jardine, however.

For one thing, the united entity already houses a collection of misfit assets. There’s a construction company, airport ground-handling unit and half a joint venture with Schindler Lifts. A money-losing British car dealership sits alongside its profitable Hong Kong cousin. There’s also mission creep between units, such as Pizza Hut franchises in one place and Starbucks elsewhere. Each looks small on its own, but a broader cleanup would add up. Some $2.9 billion of securities, including Toyota Motor and Rothschild stakes, also warrant reconsideration.

Since Jardine last saw off an investor campaign two decades ago – when Brandes urged the same restructuring unveiled last week – it has proceeded with extreme caution. The company’s management has made clear no other big changes are in store. An aggressive hedge fund might have other ideas.