A few months back, I wrote about how I hated the Mapletree Commercial Trust (MCT) – Mapletree North Asia Commercial Trust (MNACT) merger.
Well… this morning MCT came back and announced a revised offer:
MCT will now buy out MNACT with an all-cash offer.
To be funded via a preferential offering at $2.0039 per MCT Unit.
That is 100% backstopped by the Mapletree Sponsor.
Spoiler alert – I like this new merger.
As a MNACT unitholder, it was like Christmas come early.
As a MCT unitholder, I mean I still hate the merger, but it’s significantly better than the previous position.
Market seems to agree with me in any case.
MCT closed the day up 0.5%.
While MNACT closed the day up a whopping 8.9%.
What changed with the new MCT offer for MNACT?
There are 3 big parts to the new offer:
- MCT all cash offer for MNACT
- Funded via a preferential offering at $2.0039 per MCT Unit
- Mapletree Sponsor will backstop the entire preferential offering
Let’s run through each.
MCT all cash offer for MNACT
Previously MNACT unitholders were bought out in MCT units.
This is bad for MNACT unitholders because it exposes them to uncertainty in MCT’s unit price. If you didn’t want to hold MCT, you have to sell, but you don’t know what price the MCT units will be when you get them.
For MCT unitholders this was bad because it would have led to massive dumping of MCT units from disgruntled ex-MNACT unitholders.
Kinda like the Keppel offer for SPH – messy all round.
Well, MNACT unitholders will now have a new option – a buyout offer with 100% cash, at S$1.1949 per MNACT unit.
In fact – this is going to be the default option.
MCT will fund the merger via preferential offering at $2.0039 per MCT Unit
Previously, the merger would be funded by giving MNACT Unitholders units in MCT.
But now MNACT unitholders get cash right?
So where does the cash come from?
Answer – MCT will fund it via a preferential offering at $2.0039 per MCT Units.
The reason why this is good is because the pro-forma impact to DPU and NAV does not change.
Or in simple English – the financial impact on MCT is exactly the same with the new merger, as with the previous merger.
MCT doesn’t need to take on any additional gearing or debt with the new merger.
And the advisors don’t need to redo the numbers. Yay…
Mapletree Sponsor will backstop the entire preferential offering
Don’t worry, I saved the best part for last.
The Mapletree Sponsor (Mapletree Investments Pte Ltd) will backstop the entire preferential offering.
To better understand what this means – MCT units trade at $1.9 today.
MCT is doing a big $2.2 billion preferential offering at $2.0039 per MCT Unit, to fund the acquisition.
But nobody in their right mind will take up the preferential offering at $2.0039 right, when the price on the open market is $1.9.
But… Mapletree Sponsor just said they will buy all the excess units that MCT unitholders won’t buy.
And no MCT unitholders will buy the preferential offering.
Which basically means – Mapletree will fund the entire MNACT acquisition themselves.
I mean… Whaaaaaat?
Don’t worry, you didn’t read that wrong.
Assuming that no MCT unitholders take up the preferential offering, and all MNACT unitholder opt to take cash (which is basically a 99% chance at this point), then basically Mapletree Sponsor is going to buy all the new MCT units that are being issued to fund this acquisition.
And Mapletree’s stake in MCT will go up from 34.75% pre acquisition to 57.09% post acquisition.
To show how committed they are, Mapletree Sponsor even committed to not sell any of their units for 6 months.
So FH… you are telling me that MNACT will effectively be privatised with an all cash offer at $1.1949.
And Mapletree will inject MNACT into MCT in exchange for units in MCT at $2.0039, which is 5% above MCT’s market price?
Well yeah… if you break it up and look at substance over form, it sure looks that way.
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Why is Mapletree doing this?
I suppose the big question is why is Mapletree doing this?
This will cost them $2.2 billion to buy out all the unwanted MCT units in the preferential offering.
$2.2 billion they did not need to spend under the previous merger.
At a 5% premium to the latest closing price of MCT.
I mean… last I checked, Mapletree wasn’t a charity. Why are they suddenly so generous?
I suppose one way of looking at it is that maybe the brains behind this merger genuinely misgauged the market reaction.
Maybe they thought MCT and MNACT unitholders would have loved the offer.
And they were genuinely surprised by the horrible market response, that even led to shareholder activist action for MNACT.
And maybe after all that hoo-ha, they decided to return to their roots as one of the best Sponsor for S-REITs, and switch to a more unitholder friendly merger?
Okay I’m not an idiot, I know some of you may call me naïve for choosing to believe this sequence of events. And I know there are “alternative” interpretations of why they had to do this floating around.
But hey… a horse can dream right?
I love this merger as a MNACT unitholder
In any case, I love the merger as a MNACT unitholder (full disclosure – I own both MCT and MNACT units).
It’s effectively an all cash buyout for me, at NAV.
Which given how MNACT has been trading the past few years, is a pretty decent deal in my books.
In fact the market loved the merger so much, that MNACT units closed at $1.22 today, a whole 3 cents above the buyout price of $1.19.
This means that if you buy at $1.22 and the buyout closes, you only get $1.1949 in cash and whatever distribution from now until then (around $0.03).
Or in other words, the market is pricing in a very, very high probability (close to 100%) that this merger will close.
More neutral on the merger as a MCT unitholder
Okay, as a MCT unitholder I still hate the merger.
It does remove the short term uncertainty associated with MNACT unitholders dumping their positions on the open market.
And I don’t need to cough up any new capital for this merger.
So that’s good.
But longer term, it doesn’t really change the fact that I bought MCT for best in class exposure to the Greater Southern Waterfront via Vivocity and Mapletree Business City.
And now I’m only getting 50% of that, and the other 50% is a giant retail mall in Hong Kong and a bunch of offices in North Asia.
Kinda not what I signed up for… if you get what I mean.
But no denying that this is still a better deal than the previous one.
What will I do with my MCT/MNACT units?
Some of you have asked what I plan to do with my MCT / MNACT units.
For me it’s simple. If MNACT stays at $1.22 tomorrow I might just sell the entire position.
Time value of money, makes sense to cash out now and redeploy the funds, rather than wait till Aug to get the same amount back.
If it drops below (most likely), then I’ll just hold the units and take the cash when the time comes.
Unless of course MCT trades above $2.00 (when it’s time to choose) then I opt to take the MCT units, but frankly the odds of that are incredibly slim.
For my MCT units I will just hold.
It’s a core long term position for me, and I don’t see much point selling at this price.
MCT isn’t exactly a compelling must buy at this price too, so I won’t be adding in a big way too.
Timeline for MCT – MNACT merger
Timeline wise, the EGM for both Mapletree REITs is scheduled for end May, with everything wrapped up by end August.
As always – love to hear what you think!
Are you a Mapletree Commercial Trust or Mapletree North Asia Commercial Trust unitholder? Do you like this new merger?
As always, this article is written on 21 March 2022 and will not be updated going forward. Latest thoughts (and my stock watch and personal portfolio) are available on Patreon.
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