A group of minority holders of Great Eastern Holdings Ltd are resisting the S$1.4 billion (US$1 billion or RM4.88 billion) takeover bid from Oversea-Chinese Banking Corp (OCBC), opening a new front in a long-standing fight between shareholder activists and Singapore’s second-largest lender.

The price of S$25.60 per share is well above the price before the announcement, but some shareholders point to a 30% discount against Great Eastern’s embedded value, a metric that’s been used to value insurance firms elsewhere. By that measure, it is half the valuation the bank used in its last attempt to take full ownership of the company. 

OCBC, which holds more than 88% of Great Eastern, said earlier this month it is seeking to delist the stock.

“We are now caught between a rock and a hard place,” said Ong Chin Woo, who owns shares in Great Eastern and OCBC. Since 2021, he’s been a vocal spokesman for a group, which now comprises more than 100 minority shareholders. “If OCBC has no other choices, at least give us a fair exit offer.”

An OCBC spokesperson defended the number, saying it reflects a roughly 40% premium over the price in both the month and the year before the announcement, as well as in multiples of the insurer’s book value and other financial metrics. 

Morgan Stanley banking analysts led by Nick Lord said the offer is “high”, and will contribute positively to earnings at OCBC, as well as make management of the combined entity easier.

The bank has steadily built its 88.44% stake in the 116-year-old insurer, which operates in Singapore, Malaysia and Indonesia. Over the past 10 years, it’s contributed an average of about S$700 million a year in net income to OCBC, equivalent to about 15% of OCBC’s annual profit, according to the bank. 

Over the past decade through the end of 2023, OCBC shares have risen more than 30%, while Great Eastern dropped 1%. The insurer’s minority shareholders have been lobbying for years for higher dividends and better liquidity.

They have also objected to using OCBC stock to reward Great Eastern executives like chief executive Khor Hock Seng, whose long-term incentives have been paid in OCBC shares. 

Great Eastern told investors in April that it had taken steps to strengthen capital management and improve dividend payouts, but that many of the factors that affect share prices are beyond its control. As for the executive compensation, the insurer said the structure helps to foster the “One OCBC Group” spirit with its holding company, and using Great Eastern shares would impact the stock’s liquidity. 

OCBC’s current offer ascribes zero value to Great Eastern’s future underwriting and to its agency network, said Thilan Wickramasinghe, an analyst at Maybank Securities Pte Ltd. “There are risks that OCBC might have to make a higher offer, in order to narrow that discount gap”, he said. 

Some members of Singapore’s oldest business clans are invested in the outcome. Companies linked to Lee Thor Seng, part of the clan that co-founded OCBC, have a stake. Wong Hong Sun, whose grandfather was the chairman of Great Eastern for close to 20 years, holds more than three million shares. “Even if I am not sentimental, I won’t sell,” he said. “Half price is no way.”

Great Eastern appointed EY as an independent financial adviser to assess the merit of OCBC’s offer and make a recommendation to shareholders. OCBC will dispatch the offer document to Great Eastern shareholders no later than the end of May, and the offer opens for at least 28 days, according to the current timeline. 

“Normally you’d pay a substantial premium to take a majority stake of a company,” Bloomberg Intelligence analyst Steven Lam said. But listed insurance firms are rare in Southeast Asia, making it difficult to find a comparable benchmark. And, he added, “this time we are dealing with a minority stake of 11.56%.” 

  - Bloomberg