Great Eastern shares soar after OCBC makes $1.4b buyout offer

Bid at 25.60 per share is above May 9 market close, below embedded value

- Prisca Ang

OCBC Bank has made a $1.4 billion bid to take its insurance arm Great Eastern Holdings private following recent shareholder unhappiness over falling returns.

The voluntary unconditional general offer is for the 11.56 per cent stake in Great Eastern that it does not own, OCBC announced on May 10.

The offer price of $25.60 represents a 36.9 per cent premium over Great Eastern's closing price of $18.70 on May 9. It also represents premiums of 38.6 per cent, 40 per cent and 42.4 per cent over the respective one-month, three-month and 12-month periods up to and including May 9.

However, the offer represents a 30 per cent discount to the company's $36.59 per share embedded value as at the end of its last financial year.

Great Eastern shares rose $7.02 or 37.54 per cent to close at $25.72 on May 10, above the offer price.

Analysts told The Straits Times that OCBC's excess capital puts it in good stead for the deal, especially given the bank's lack of major acquisitions compared with its local peers. It recently paid $191 million for Indonesia's Bank Commonwealth.

OCBC said the offer is in line with the bank's corporate strategy and strengthens its business pillars of banking, wealth management and insurance.

It added that the offer is expected to be earnings accretive to the bank. Great Eastern has contributed an average of about $700 million annually in net profit to OCBC over the past 10 years.

This translates to an average of about 15 per cent of the bank's annual net profit over this period.