Commentary: Did anyone really win the Great Eastern-OCBC standoff?

CNA

4 days ago

SINGAPORE: At Great Eastern's extraordinary general meeting on Tuesday (Jul 8), around 63.5 per cent of the insurer's minority shareholders said yes to delisting. But this did not meet the 75 per cent approval required to go ahead with the proposal.
As a result, the proposed S$30.15 exit offer from majority shareholder OCBC – which was conditional on the delisting resolution being passed – lapsed.
This was celebrated by dissenting shareholders as a win for minority rights. At the same time, others picked OCBC, the Singapore Exchange (SGX) as well as Mr Wong Hong Sun and his family - who collectively hold more than a quarter of Great Eastern minority shares that voted this week – as 'winners' in the year-long saga.
Mr Wong – whose grandfather chaired Great Eastern for nearly 20 years – has been outspoken about his decision not to sell, citing both sentimental ties and valuation concerns.
If everyone is the winner, who is the loser?
Two groups of minority shareholders are now left exposed: those who declined OCBC's voluntary general offer last year of S$25.60 per share, and those who supported the more recent S$30.15 offer but were blocked by a small group of holdouts.
A SMALL YET POWERFUL GROUP
As Great Eastern's filing with the SGX shows, shareholders owning 23.7 million shares voted in person or by proxy. Of those, 15.02 million shares, or 63.49 per cent, voted to delist. But the Wong clan representing 7.56 million shares voted against. Their collective stake accounts for 87.5 per cent of the 8.64 million shares that torpedoed the delisting.
In short, despite being the majority of the minorities, shareholders owning the 63.5 per cent voting shares failed to push through the resolution.
Following the failed move to delist, Great Eastern shares will likely resume trading.
But this share trading can only resume if Great Eastern restores the minimum 10 per cent free float required under SGX's rules. And this in turn depends on whether Great Eastern can carry out its plan to dilute OCBC's stake from 93.7 per cent to below 90 per cent.
To effect this dilution, Great Eastern will have to declare a 1-for-1 bonus issue of ordinary and Class C non-voting shares.
OCBC has agreed to support this so-called 'Pathway 2' to resolve the suspension impasse by agreeing to take up the non-voting shares. It will not, however, lose its 93.7 per cent rights to any economic benefits offered to ordinary shareholders, such as dividends.
The default election for minority shareholders is ordinary voting shares, but they too have a right to accept the bonus shares in the form of the Class C non-voting scrip.
From the questions asked during the extraordinary general meeting, it seemed like some shareholders disagreed with the advice of Great Eastern's independent directors and independent financial adviser. One of the shareholders told the Board that had they earlier taken the independent directors' advice, they wouldn't have gotten the higher S$30.15 exit offer.
THE RIGHT PRICE
This brings us to the next bizarre aspect of this saga.
Having torpedoed Pathway 1 (the delisting), minority shareholders holding the combined 36.5 per cent stake surely intend to extract another exit offer, higher than the S$30.15 that they had rejected.
Mr Wong was quoted in the press as saying that Great Eastern is his 'grandfather's company … I would not sell it'.
What he probably meant was 'it's my grandfather's company, I won't sell at this price.'
After all, when probed if the family might sell if the offer price was higher, he said: 'We might.'
That is perfectly fair and fine: Every shareholder must seek the best price.
But Pathway 2 is also fraught with problems for these dissenting minorities.
If most minorities accept ordinary shares, Great Eastern will get to resume trading. However, when trading resumes, Great Eastern's shares will likely go south – below the pre-takeover price of S$18.70 – going by past trends.
All minorities will end up worse off than before the takeover bid was launched in May 2024.
UK activist fund Palliser, which reportedly bought into the counter at above S$25, will likely book millions of dollars in paper losses.
So, it would be in the interest of dissenting shareholders to also scupper the lifting of trading suspension by electing for Class C non-voting shares. Mathematically, they would need the help of another 1.1 million shares to keep the counter in limbo – not delisted but still suspended.
WHAT'S THE LIKELIHOOD OF ANOTHER OFFER?
Can the dissenting minorities force the parties to make another exit offer?
OCBC has stated clearly that it 'will not make another offer for Great Eastern in the foreseeable future'.
Why should it? From OCBC's perspective, it can mop up Great Eastern shares if trading resumes at a discounted price. The bank is the master of the long game. Lest anyone forgets, it has been accumulating Great Eastern shares for the last 30 years.
If lifting of the suspension is thwarted, the ball will be in the SGX's court to figure out a solution. Can the SGX compel a 'round 2': invite another, perhaps higher, exit offer?
Or will it let the market decide on the price of an exit that is the result of willing buyer-willing seller arm's length negotiations between a major shareholder and minority shareholders who want out?
There is no precedent, and we could be sailing into uncharted territory.
What happened at the extraordinary general meeting is not a situation of the minorities having a voice. It is not a tyranny of the majority. The cynic might even call it tyranny of the 'minority of minorities'.
The wishes of two-thirds who wanted to exit at S$30.15 was thwarted by the one-third who hope that the regulator can force OCBC/Great Eastern to come up with a higher exit offer.
Finally, all this also raises the question of whether the SGX should rethink its 75 per cent rule to delist a company at the exit offer stage?
If nothing else, the Great Eastern situation has laid bare the reality that shareholders controlling one-third of 6 per cent of a company can have the last word on a matter of such importance to all shareholders. Would not a simple majority of, say 50 per cent, be fairer?