SINGAPORE - 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.

“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 the (bank) reinforces its long-term vision of becoming the leading wealth management player,” OCBC said.

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.

Asked about the timing of the offer, group chief executive Helen Wong described the bid as a “natural move” as the bank strengthens its wealth business.

“We’re not just looking at Great Eastern. We have been investing in Bank of Singapore, we have been investing in the way we provide our products, we’ve been looking at digitalising our channels. So that’s why we continue to grow net new money and AUM (assets under management),” she said at a media briefing.

“As we looked at our capital position, (we decided that) this is the right time,” said Ms Wong. 

OCBC said it will continue to develop and grow Great Eastern, and it currently does not plan to introduce major changes to the insurer’s existing business, redeploy its fixed assets, or discontinue the employment of existing employees of Great Eastern and its subsidiaries, other than in the usual course of business.

“However, (OCBC) retains the flexibility to at any time consider undertaking a strategic and operational review of (Great Eastern) with a view to realising synergies, economies of scale, cost efficiencies and growth potential,” it said.

Asked why the deal is the best use of OCBC’s capital, compared with acquiring a new business or increasing dividends, Ms Wong said: “We position ourselves for long-term, sustainable growth.

“If you just pay out dividends to shareholders, then you don’t have the capital for future opportunities to grow... Compared with buying something different, for this one, we don’t have any integration risks at all,” said Ms Wong.

Mr Thilan Wickramasinghe, Singapore research head and regional financials head at Maybank Investment Banking Group, said the deal’s incremental synergies for OCBC are unclear at this stage.

“Their joint bancassurance business is already top two in the market, and Great Eastern is already consolidated with OCBC Group accounts. The incremental uplift to earnings is only around 1.4 per cent should the deal be successful,” he said.

Great Eastern was listed on the Singapore Exchange’s mainboard in November 1999. It has 16 million policyholders in Singapore and Malaysia, and it also operates in Indonesia and Brunei. The insurer had over $100 billion in total assets as at 2023.

Great Eastern provides insurance solutions to customers through three distribution channels – a tied agency force, bancassurance and financial advisory firm Great Eastern Financial Advisers.

The company said at its annual general meeting in April that its board had heard shareholders’ concerns over falling returns. Several shareholders had questioned what Great Eastern was doing to improve its returns, especially its share price, which one investor called “a disaster”.

Another question was raised about how OCBC’s 88.44 per cent stake in Great Eastern may have contributed to the low trading liquidity and weak market value of its shares.

The Securities Investors Association (Singapore), or Sias, said on May 10 that it commends OCBC for its proactive response to feedback from Great Eastern’s (GE) minority shareholders, who had raised concerns with the insurer’s performance and potential misalignment between GE shareholders and management.

“GE’s recently announced (first quarter) results showed good growth and earnings, adding on to its embedded value of $36.59 per share as at FY23,” it said.

“While (OCBC) intends to seek a delisting of GE if the free float falls below 10 per cent, Sias would like to advise all shareholders to exercise patience and due diligence before making any decision,” it added. It also advised GE’s minority shareholders to wait for guidance from an independent financial adviser.

Phillip Securities research analyst Glenn Thum said that while OCBC’s offer falls short of embedded value, it might appeal to investors who bought Great Eastern in the last five years, when the counter traded below embedded value.

Noting that the closing share price on May 10 was less than 1 per cent above the offer price, he suggested that investors could wait and observe OCBC’s next move.

IG market analyst Yeap Jun Rong said that OCBC has had a higher capital position than its local peers, and a capital buffer that is significantly above regulatory requirements.

“As such, OCBC has been trying to deploy its excess capital to good use, in line with the acquisition spree that we have witnessed among local banks lately, where the banks are tapping their strong capital base to step up on their expansion plans to maintain earnings growth,” he said.

According to its briefing slides, OCBC will dispatch its offer document no later than May 31. It will then send the circular to Great Eastern’s shareholders no later than 14 days from the dispatch of the offer document.

The closing date of the offer will be no earlier than 28 days from the date of the dispatch of the offer document.