HNA Group Offers To Take Over CWT Ltd For $2.33 Per Share: Is That A Fair Price?
There have been a wave of privatisations in Singapore’s stock market over the past two years. Some recent examples are instant coffee maker Super Group Ltd (SGX: S10) and real estate fund management company ARA Asset Management Limited (SGX: D1R).
Last Sunday, the market received news of another takeover bid. This time, the target is logistics services provider, CWT Ltd (SGX: C14). In this deal, the acquirer, Chinese conglomerate HNA Group, is offering to privatise CWT at a price of S$2.33 per share. The offer values the entire CWT at S$1.4 billion.
Some members of CWT’s senior management and the company’s major shareholders – who collectively control over 65% of the company’s stock – have undertaken to accept HNA Group’s offer. But, for minority shareholders, it’s inevitable that a question would arise: Is HNA Group’s offer fair?
When it comes to a company’s valuation, there are many different ways to look at it, hence there’s no real right or wrong answer. What I’d like to do is to look at the history of CWT’s price-to-book (PB) and price-to-earnings (PE) ratios and see how the valuation at the offer price stacks up. At HNA Group’s offer price, CWT has a PB ratio of 1.6 and a PE ratio of 19.0.
Here’s a chart showing CWT’s PB and PE ratios over the five years ended 7 April 2017 (the last trading day prior to the announcement of HNA Group’s bid) and at the offer price:
Source: S&P Global Market Intelligence
As the chart above makes clear, HNA Group’s offer price gives CWT big valuation premiums when compared to the company’s history for the five years ended 7 April 2017. In that time frame, the company’s PE ratio ranged between 6.6 and 17.0. Meanwhile, its PB ratio had a peak and trough of 1.84 and 1.15, respectively.
So, from the perspective of CWT’s PB and PE ratios, the offer by HNA Group is a fair one.
