Singapore’s second-biggest lender, OCBC, on Friday (May 10) announced a S$1.4 billion (US$1.04 billion) offer to buy the remaining stake in insurer Great Eastern Holdings, with the aim of delisting the company.
OCBC, Great Eastern’s biggest shareholder, said it would acquire the 11.56 per cent stake in the insurer that it does not currently own. If it goes through, the deal will give the lender full ownership of the firm.
The offer price of S$25.60 per share represents a premium of 36.9 per cent over Great Eastern’s last traded price of S$18.70, the bank said in a press release.
OCBC noted that its latest move is aimed at strengthening its business pillars of banking, wealth management and insurance, as well as optimising its capital to enhance shareholder returns.
“In a fast-growing region that has seen rising demand for products and solutions to enhance and preserve wealth, bringing Great Eastern even closer to OCBC reinforces its long-term vision of becoming the leading wealth management player,” it added.
The acquisition is expected to contribute to earnings, OCBC said, noting how the insurer has contributed an average of about S$700 million annually in net profit to OCBC over the past 10 years. This translates to an average of about 15 per cent of OCBC’s annual net profit over this period.
For the most recent quarter ended March, profit contribution from Great Eastern rose 28 per cent on the year to S$260 million, supported by better investment performance and improved claims experience.
OCBC also highlighted this as an opportunity to “deploy its capital to generate greater returns for its shareholders”.
The lender has been the majority shareholder of Great Eastern for the past 20 years. It previously made an offer to increase its investment in the insurer in 2004 and 2006.
Responding to questions about the timing of its latest offer, OCBC Group CEO Helen Wong described it as “a natural move” as the bank looks to strengthen its wealth management proposition which includes insurance as a “very important pillar”.
Ms Wong added the move was not influenced by recent concerns raised by the insurer’s minority shareholders about the company’s share prices and continued valuation decline.
“Our strategy is always to solidify the wealth management leadership position so acquiring more shares in Great Eastern is an ongoing exercise,” she said at a press conference for the bank’s quarterly earnings.
“But as we said, we always look at our capital position, how to best use it and this is one of the options.”
Asked to elaborate on why the offer was seen as its best way to deploy capital, compared with other acquisitions or distributing dividends to shareholders, Ms Wong replied that the lender is positioning itself for sustainable growth.
