OCBC’s recent announcement to acquire the remaining 11.56% stake in Great Eastern for S$1.4 billion has stirred debates regarding the timing and motives underlying this significant move. Despite OCBC’s robust financial standing and strategic acquisitions like Indonesia’s Bank Commonwealth, the rationale behind the bid remains enigmatic.
This bid comes in the wake of previous unsuccessful attempts by OCBC to privatize Great Eastern, aligning with its ambition to dominate wealth management in a burgeoning market.
The bid is fueled by OCBC’s anticipation of bolstering its earnings, with Great Eastern historically contributing substantially to its net profit. OCBC’s CEO, Helen Wong, views the bid as a logical step in fortifying the bank’s wealth business amidst ongoing digitalization and product enhancements.
The bank’s stellar financial performance, exemplified by a 5% increase in first-quarter net profit to $1.98 billion, serves as a robust backdrop for the bid. Great Eastern, with its extensive market presence spanning Singapore, Malaysia, Indonesia, and Brunei, holds promise as a strategic asset.
However, the rationale for the acquisition becomes murkier upon closer examination. Despite OCBC’s majority stake in Great Eastern and the integration of its financials, privatizing the insurer may not yield substantial operational changes.
Yet, mounting grievances from minority shareholders, underscored by Ong Chin Woo’s advocacy for board resolutions to enhance shareholder value, potentially catalyzed OCBC’s action.
These grievances revolve around concerns regarding Great Eastern’s performance, including disparities in stock option rewards for management and underperformance compared to OCBC.
While OCBC’s offer price represents a premium over recent trading prices, it falls short of Great Eastern’s embedded value, eliciting questions about its commitment to shareholder interests. Critics argue that offering the embedded value would better reflect Great Eastern’s true worth and preserve shareholder trust.
Ultimately, the offer’s acceptance or rejection may hinge on its perceived fairness and alignment with shareholder expectations.
In conclusion, OCBC’s bid for Great Eastern appears multifaceted, intertwining strategic aspirations with potential responses to minority shareholder pressures. As the bid unfolds, its implications for shareholder value and OCBC’s strategic trajectory will be closely scrutinized by market observers.
