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Will Blackstone Succeed in de-listing Croesus Retail Trust?

I recently sold all my units in Croesus Retail Trust in Sep after holding this for 2.5 years... and including the dividends to be received on 28 Sep 2017, the total returns has been around 67%. This counter has exceeded all my return expectations as i have invested in it purely for dividends.

In an earlier survey, 53% of readers say that it is too attractive to give up the yield without a fight! 🤕 and there is a chance that they may be right. As such, even though Blackstone offered to buy over my shares at $1.17, I divested them in the market at $1.155 cents. I am fine with giving up 1.5 cents per share for the binary outcome whereby if the scheme of arrangement fails to go through, the stock is going to tumble down. 

Scheme of Arrangement

Blackstone initiated a scheme of arrangement rather than a usual takeover bid is because they want to take Croesus Retail Trust private. This is a "all or nothing" transaction for Blackstone. Let's analyse what the "key ingredient" of success is for a scheme of arrangement by looking at two recent examples.

Temasek owned about 54% of the Company and through a scheme of arrangement, it took SMRT private by acquiring 75% of the shares it doesn't own. SMRT was operating in a challenging environment and the scheme represents a chance for minority shareholders to exit at a higher price.

Mr Sabnani also noted that SMRT is being taken private based on the Scheme of Arrangement where Temasek will need acquire 75 per cent of the shares. "In the case of General Offer, you need to secure 90 per cent of the remaining shares. So in SMRT's context, Temasek has to secure 90 per cent of the outstanding minority shareholders' votes (which is the 46 per cent it does not own). That's a high number, higher than (that of) a Scheme of Arrangement. And if they don't get that threshold, they will need to raise the offer price," he explained.

Northstar also tried to privatise Innovalues through a scheme of arrangement. In this case, the major shareholders who owned close to 39% of the company has agreed to vote in favor of the scheme.

Four major shareholders - including the CEO Goh Leng Tse, directors Pung Tong Seng and Ong Tiak Beng and substantial shareholder Koh Boon Hwee - collectively own 38.73 per cent stake in Innovalues and have undertaken to vote in favour of the scheme. The scheme will require the court's sanction and approval by Innovalues shareholders representing not less than 75 per cent in value of the shares held by those voting at the scheme meeting.

In both instances, the majority shareholder is either the acquirer or has agreed to be acquired by voting for the scheme. This seemed to be somewhat lacking in the case of Croesus Retail Trust?

Shareholders of Croesus Retail Trust

Looking at the list of shareholders of CRT, the shareholders are widely dispersed and the largest single shareholder is linked to Goh Yew Lin (GK Goh family). See report here.

Will Mr. Goh vote for or against the scheme? 

Mr Goh Yew Lin, managing director of GK Goh Holdings, which controls GKGI, told The Straits Times: "We haven't decided whether to accept. We invested in Croesus because it has an excellent portfolio of assets in Japan, and the trust was for a long time trading at an exceptionally attractive yield. Although Blackstone's bid is at a premium to the undisturbed price, they're very smart investors who clearly expect further upside by buying at these levels. We'll wait to see what the independent advisers recommend before making a final decision.

It's hard to imagine why Mr. Goh would vote for the scheme if he is still buying close to the takeover price but he is definitely one voter who can de-rail the privatisation scheme if he votes against it.

How to get the scheme approved?

My earlier post indicated that you need at least 75% of the unit holders in value present to vote for the scheme.

What happens if the scheme fails?

Looking at the share price chart, if the scheme fails, it will likely fall towards $1.00-1.10 range as the company has incurred expenses in organising this scheme of arrangement. 

Now that i have fully divested my shares, i will watch from the sidelines. 

The exciting show will be take place on 13 Sep 2017 at 10am and investors will know whether they are croesuing, chorusing or cursing....😎

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