Wheelock & Co., one of Hong Kong’s largest property developers, is offering shareholders a 52% premium to delist and become a private company.
The Woo family, Wheelock’s largest shareholder, is offering one share each of Wharf Real Estate Investment Co. and Wharf Holdings Ltd. to Wheelock investors, according to an exchange filing Thursday. Investors will also receive HK$12 cash for every share of Wheelock they own.
The transaction aims to unlock shareholder value “through the elimination of the historical holding company discount of the company’s stake in Wharf REIC and Wharf,” Wheelock said.
Other benefits of the proposal include higher dividend income from Wharf REIC and Wharf shares in addition to a return on cash, plus an enhanced choice for “shareholders through separate and direct ownership of Wharf REIC shares and Wharf shares with higher trading liquidity,” according to a statement.
Wheelock holds around 66.5% of the issued shares of Wharf REIC and about 70.7% of Wharf, a property company that’s also focused on development in mainland China and Hong Kong.
The offer values Wheelock shares at HK$71.90 each, the statement said. That’s 52% more than the last trading price before the stock was halted on Feb. 24 pending the announcement.
Chance of Success
Based on the total number of Wheelock shares outstanding gives a transaction value of around HK$147.6 billion ($18.9 billion). Based on the total number of scheme shares of 667.4 million gives a value of about HK$48 billion, with the Woo family needing to pay around HK$8 billion cash.
“The number on the surface is large, but in fact, the share prices of the other two companies are much lower,” Raymond Cheng, a property analyst at CGS-CIMB Securities Ltd., said. “So there’s a high chance for the major shareholder to succeed in the privatization.”
Cheng added that for Wheelock’s other shareholders, the best result would have been all-cash.
“The plan has almost 85% of the price paid by one unit of Wharf’s shares and another unit of Wharf REIC, which are subject to market fluctuations,” he said.
Wheelock shares surged as much as 50.3% to HK$71 when trading resumed Thursday afternoon before closing up 39.7% at HK$66.00.
The property developer has traded at a discount to its holdings in Wharf and Wharf REIC. Its combined stake in the two companies at the Feb. 24 closing price was HK$123.7 billion, exceeding its own market value of HK$97 billion, according to the statement.
Bloomberg Intelligence says: Wheelock’s proposed privatization could boost shareholders’ return and dividend income. An extensive Hong Kong residential land bank should allow it to sustain property sales by keeping its project pipeline full through 2023 — Patrick Wong, real estate analyst.
Wheelock is Hong Kong’s fifth-largest developer by market value. Controlled by the Woo family and founded in 1857, its projects include the ultra-luxury Mount Nicholson development on the Peak, plus a large real estate presence in Tseung Kwan O.
Wharf REIC, meanwhile, owns Tsim Sha Tsui’s Harbour City as well as Times Square in Causeway Bay. Wharf spun off Wharf REIC in 2017 to enable the group to focus on its investments in Hong Kong shopping malls.
Peter Woo, the patriarch of the Woo family, is ranked as the seventh-richest person in Hong Kong with a net worth of $11.8 billion, according to Bloomberg Billionaire’s Index. His other investments have included cable TV, telecoms and port facilities. The billionaire retired as chairman of Wheelock and Wharf in May 2015.
Over the years, Woo has been streamlining businesses within the Wharf family group. In 2016, Wharf sold telecoms company Wharf T &T Ltd. to a consortium including MBK Partners and TPG Capital. It also exited investments in I-Cable Communications Ltd., a Hong Kong cable TV operator.
The proposed privatization isn’t the first for a real estate company in Hong Kong. New World Development Co. did a similar thing in 2016 when it privatized its China unit New World China Land Ltd. to streamline the overlapping business.