Ascott And Somerset Holdings Plan To Merge, To Create Asia Pacific Largest Serviced Residence Company
Singapore, July 12 - The Ascott Limited ("Ascott") and Somerset Holdings Limited ("Somerset") have signed a merger agreement to form Asia Pacific's largest serviced residence company, with total combined assets of approximately $2.7 billion, over 6,000 serviced residence units in 16 cities and 10 countries, and a global reach spanning from Auckland, New Zealand to London, United Kingdom.
The parties have entered into the merger on the basis that the merged entity shall become a pure play serviced residence company.
The merger will be implemented pursuant to a scheme of arrangement. Under the scheme, Somerset, designated as the scheme company, will become a wholly owned subsidiary of Ascott. Pursuant to the terms of the agreement, each outstanding share of Somerset will be exchanged for 0.93 Ascott shares, which will remain listed on the SGX.
In the coming months, Ascott shareholders will receive a shareholder circular while Somerset shareholders will receive a scheme document. Save for the shareholders who are deemed to have a separate interest in the transaction, both Ascott shareholders and Somerset shareholders will be entitled to vote on the merger. The merger agreement has been approved by the Board of Directors of both Ascott and Somerset. The merger is subject to certain closing conditions, including approval by the shareholders of Ascott and Somerset. The transaction is expected to close in the fourth quarter of 2000.
Mr Ed Ng, Ascott's chairman, said: "The combination of Ascott and Somerset creates the dominant serviced residence player in the Asia Pacific region. With our significantly larger portfolio, we will be in a powerful position to build a global portfolio with strong internationally recognised brands.
"We are excited with the merger and look forward to working with Somerset to secure the merged entity's premier position in the serviced residence industry."
Somerset's chief executive officer, Mr Kee Teck Koon, said: "With this proposed merger, we create a unique opportunity to effectively compete for global leadership in the growing serviced residence industry. This is a winning proposition to maximise value for both companies' shareholders.
"For all our staff, the increased scale offers more opportunities for career challenges and growth."
RATIONALE FOR MERGER
The proposed merger will create the largest serviced residence owner / manager in the Asia Pacific.
The merger will benefit Ascott and Somerset in these ways:
- Unique opportunity to become dominant serviced residence company in Asia Pacific
The merger is a unique opportunity to consolidate size, presence and resources for greater market dominance in the cities in which both companies operate. With the combined $1.07 billion in serviced residence assets, the merged company can now exist as a "pure play" serviced residence business. It can therefore seek growth through market dominance and geographical diversification rather than product or business diversification.
The merger will also enable Ascott and Somerset to consolidate their strong brand presence in the Asia Pacific. Currently, Somerset has its "Somerset Heritage", "Somerset Grand" and "Somerset Executive" brands servicing top, upper and middle management respectively. Ascott has its "The Ascott" brand for upper to top management and "Stamford" brand for middle to upper middle management.
- Larger platform to expand internationally and launch new initiatives
The increased size will better position the merged company to expand internationally into new markets while its larger asset base will provide the critical mass and international presence to establish global brands.
In most of its existing markets, the company will become a significant player, with increased competitive advantage. It will better serve its corporate clients through a wider geographical coverage.
The merged entity will also have a stronger platform from which to negotiate third party management contracts, and attract new opportunities and alliances.
- Operational synergies and economies of scale
With the merger, synergies and economies of scale can be exploited and greater operational efficiencies realised. The company can achieve improved cost management through bulk procurement, cross marketing and sales, general overhead reductions and clustering of properties.
The combined company will also have a larger pool of management expertise and human resources, and can attract talented staff by offering more career opportunities and international exposure.
- Increased market capitalisation, improved liquidity and greater investor interest
The combined company will have a significantly larger market capitalisation, which should improve the liquidity and float of its shares, resulting in greater international investor interest.
- Stronger capital base and enhanced financial strength
The larger capital base will improve access to debt and capital markets, and lower the firm's cost of capital. The combined company's NTA of about $1.25 billion (as at December 31, 1999) will also provide a larger financial base to grow the business.
To be a dominant global serviced residence company. The merged company will maximise shareholder value through the development of strong international brands, the effective use of capital and efficient cost management. It will exceed customer expectations by consistently delivering high standards of service and innovative products.
- BUSINESS STRATEGY
To grow the business, it will implement these strategies:
- Develop serviced residence business
Focus on serviced residences as its core business, leveraging on the combined scale, competencies and distribution network of Ascott and Somerset to build a global serviced residence company.
The immediate priority is to build on its critical mass in Southeast Asia to expand into North Asia and Europe. The company will focus on gateway cities and establish two to three properties in each key city to achieve market presence and operating efficiency.
The merged company intends to grow through investments, third party management contracts and strategic partnerships. Emphasis will be placed on deploying an efficient capital structure for securing management contracts, and portfolio acquisitions to accelerate growth.
- Build strong international brands
Leverage on the established brands within its portfolio to build international brands with significant equity.
The merged company will adopt a distinct two-brand strategy to cater to different customer needs. The first brand will offer luxury five-star serviced residences, while the second brand will provide quality four-star residences. The existing Ascott and Somerset brands will be rationalised.
- Divest non-core assets
The merged company will divest non-serviced residence assets and businesses over the next two to three years. These comprise largely retail properties, residential developments, commercial and leisure investments. The majority of these assets are retail properties valued at approximately S$700 million for which 95 per cent of the portfolio value is in Singapore.
The divestment proceeds will be used to fund growth in the serviced residence business.
- E-Enabling and E-Business Opportunities
The merged company will harness e-technology as a competitive tool to differentiate and enhance its serviced residence products and services.
Examples include Net2Room technology, which allows guests to enjoy broadband internet access and e-mail retrieval. The companies are also exploring integrated central reservation systems and procurement portals using web technology to enhance their marketing and operational infrastructure.
The merged company will continue to pursue such strategic e-business opportunities and investments to strengthen overall competitive advantage.
- Develop serviced residence business
Salomon Smith Barney ("SSB") acted as the financial adviser to Ascott and Somerset in the merger.
INDEPENDENT FINANCIAL ADVISERS
NM Rothschild & Sons (Singapore) Limited ("Rothschild") acted as an independent financial adviser to the independent directors of Ascott; while Dexia BIL Asia Singapore Limited ("Dexia BIL") acted as an independent financial adviser to the independent directors of Somerset.
Based on the information made available to Rothschild, Rothschild is of the view that the terms of the merger are fair and reasonable and not prejudicial to the interests of the shareholders of Ascott. Based on information made available to Dexia BIL as of today, Dexia BIL is of the view that the merger is on normal commercial terms and is not prejudicial to the interests of the shareholders of Somerset. Having considered the views of their independent financial advisers, the independent directors of both Ascott and Somerset concur with the views of their respective independent financial advisers.
This news release should be read in conjunction with the full text of the announcement made to The Exchange of Singapore on July 12, 2000.
The Ascott Limited
Adeline Wong, Asst Manager
7396-141 or (Hp) 9-8637-196
Somerset Holdings Limited
Ida Lim, Vice President
IR & Corporate Communications
5867-230 or (Hp) 9-6288-339
Tay Cheng Cheng, Asst Manager
5867-231 or (Hp) 9-6557-686
The Ascott Limited
391B Orchard Road
#11-00 Ngee Ann City
Somerset Holdings Limited
8 Shenton Way
#13-01 Temasek Tower