27 Jul
2000

Financial Effects of the Proposed Merger Between Somerset Holdings and The Ascott Limited

Pursuant to the announcement made by the Company on 12 July 2000 on the proposed merger of The Ascott Limited ("Ascott") and Somerset Holdings Limited ("Somerset"), the Board of Directors of Somerset would like to, in conjunction with the announcement of the first half financial results, provide additional information on the revalued net tangible assets ("RNTA") and the financial effects of the Merger.

Basis of the Share Exchange

To recapitulate, under the proposed Merger, it is proposed that the basis on which the Scheme Shares would be exchanged for the new Ascott Shares, would be determined by reference to the following:

  1. The respective revalued net tangible assets ("RNTA") per share of Ascott and of Somerset, after taking into account the updated valuations as of 15 June 2000 of their respective properties by jointly-appointed independent international property valuers; and
     
  2. The respective average market price of the Ascott shares and of the Somerset shares over an appropriate period.

The proposed exchange ratio is 0.93 Ascott share for every one Somerset share held.

Revalued Net Tangible Assets ("RNTA")

The RNTA was determined using audited 1999 net tangible assets ("NTA") for each company and adjusted for the following:

  1. Alignment of accounting policies
     
  2. Major corporate events that would impact NTA from 31 December, 1999 through 31 May, 2000
     
  3. The difference between major properties' carrying cost on the balance sheet as at 31 December, 1999 and the market value as at 15 June, 2000
     
  4. Tax deduction on unrealised gains on trading properties sold but not yet billed and unsold trading properties.

Based on the above, the RNTA per share derived for Somerset and for Ascott is $0.79 and $0.92 respectively. Based on the RNTA per share, the implied exchange ratio is 0.86 Ascott share for one Somerset share. However, based on negotiations between the two companies to take into account the relative market share price, the exchange ratio was agreed at 0.93 Ascott share for each Somerset share.

Financial Effects Of The Proposed Merger

For the purpose of illustration, the proforma financial effects of the Merger on the shareholders' funds, net tangible asset per share, earnings per share and net gearing ratio for the financial year ended 31 December 1999 and six months ended 30 June 2000 are as set out below, determined on the following bases and assumptions:-

  1. The audited financial statements of the Somerset Group for the financial year ended 31 December 1999 and the unaudited financial statements for the six months ended 30 June 2000;
     
  2. The unaudited financial statements of the Ascott Group for the financial year ended 31 December 1999 and six months ended 30 June 2000;
     
  3. The adoption of the pooling of interests method in the preparation of the proforma consolidated financial statements of the Combined Group as the Proposed Merger constitutes a uniting of interests and meets the criteria set out in Section 69B of the Companies Act and the Statement of Accounting Standard No. 22 "Accounting for Business Combinations";
     
  4. Re-alignment of accounting policies between the two companies and
     
  5. The issue of 1,196,835,390 new Ascott shares pursuant to the Scheme.
  1. Shareholders' Funds

    The effect of the Scheme on the shareholders' funds as at 31 December 1999, is as follows:-

      Audited Somerset financial statements
    as at 31 Dec 1999

    (S$million)
    Pro Forma
    Financials of
    Somerset
    as at 31 Dec 1999
    (S$million)
    Pro Forma for the Combined Group
    as at 31 Dec 1999

    (S$million)
    Share capital 643.5 643.5 309.9
    Capital reserves 400.9 400.9 1,016.0
    Revenue reserve (77.2) (84.2) (68.8)
    Currency translation reserve (11.4) (11.4) (14.5)
    Shareholders' funds 955.8 948.8 1,242.6

     

    The effect of the Scheme on the shareholders' funds as at 30 June 2000, is as follows:-

      Unaudited
    Somerset financial statements
    as at 30 June 2000 (S$million)
    Pro Forma
    Financials of Somerset
    as at 30 June 2000

    (S$million)
    Pro Forma
    for the Combined Group
    as at 30 June 2000

    (S$million)
    Share capital 643.5 643.5 309.9
    Capital reserves 399.8 399.8 1,021.8
    Revenue reserve (65.3) (72.3) (52.5)
    Currency translation reserve (10.3) (10.3) (8.8)
    Shareholders' funds 967.7 960.7 1,270.4

     

  2. Net Tangible Assets ("NTA") Per Share

    The effect of the Scheme on the NTA per share as at 31 December 1999, is as follows:-

      Audited Somerset financial statements
    as at 31 Dec 1999
    Pro Forma Financials of Somerset
    as at 31 Dec 1999
    Pro Forma for the Combined Group
    as at 31 Dec 1999
    NTA (S$ million) 948.8 941.8 1,235.0
    Outstanding shares (million)* 1,286.9 1,286.9 1,549.3
    NTA per share (cents) 73.7 73.2 79.7
    NTA per existing Somerset share (cents) 73.7 73.2 74.1**

    * Based on outstanding shares as at 31 December 1999.

    ** Adjusted for the exchange ratio.

     

    The effect of the Scheme on the NTA per share as at 30 June 2000, is as follows:-

      Unaudited Somerset financial statements
    as at 30 June 2000
    Pro Forma Financials of Somerset
    as at 30 June 2000
    Pro Forma for the Combined Group
    as at 30 June 2000
    NTA (S$ million) 961.5 954.4 1,263.3
    Outstanding shares (million)* 1,286.9 1,286.9 1,549.3
    NTA per share (cents) 74.7 74.2 81.5
    NTA per existing Somerset share (cents) 74.7 74.2 75.8**

    * Based on outstanding shares as at 30 June 2000.

    ** Adjusted for the exchange ratio.

  3. Earnings Per Share

    The effect of the Scheme on the earnings per share for the year ended 31 December 1999, is as follows:-

      Audited Somerset financial statements
    as at 31 Dec 1999
    Pro Forma Financials of Somerset
    as at 31 Dec 1999
    Pro Forma for the Combined Group as at 31 Dec 1999
    Earnings before EI (S$ million) (7.3) (7.3) (14.2)
    Earnings after EI (S$ million) (93.8) (93.8) (149.3)
    Weighted average number of shares in 1999 (million) 677.1 677.1 886.2
    Per share (cents)
    Earnings before EI (1.1) (1.1) (1.6)
    Earnings after EI (13.9) (13.9) (16.8)
    Per existing Somerset share (cents)
    Earnings before EI (1.1) (1.1) (1.5)*
    Earnings after EI (13.9) (13.9) (15.6)*

    * Adjusted for the exchange ratio

     

    The effect of the Scheme on the earnings per share for the half year ended 30 June 2000, is as follows:-

      Unaudited Somerset financial statements
    as at 30 June 2000
    Pro Forma Financials of Somerset
    as at 30 June 2000
    Pro Forma for the Combined Group
    as at 30 June 2000
    Earnings before EI (S$ million) 5.0 5.0 7.4
    Earnings after EI (S$ million) 11.9 11.9 16.3
    Weighted average number of shares in H1 2000 (million) * 1,286.9 1,286.9 1,549.3
    Per share (cents)
    Earnings before EI 0.4 0.4 0.5
    Earnings after EI 0.9 0.9 1.1
    Per existing Somerset share (cents)
    Earnings before EI 0.4 0.4 0.4**
    Earnings after EI 0.9 0.9 1.0**

    * Represents outstanding shares as at 30 June 2000. There were no shares issued during the half year ended 30/6/00.

    **Adjusted for the exchange ratio.

  4. Gearing

    The effect of the Scheme on the net gearing ratio as at 31 December 1999, is as follows:-

      Audited Somerset financial statements
    as at 31 Dec 1999
    Pro Forma Financials of Somerset
    as at 31 Dec 1999
    Pro Forma for the Combined Group
    as at 31 Dec 1999
    Net Borrowings (S$ million) (1) 863.0 863.0 1,000.6
    Shareholders' Funds (S$ million) (2) 955.8 948.8 1,242.6
    Net Gearing Ratio (3) 0.9 0.9 0.8

     

    The effect of the Scheme on the net gearing ratio as at 30 June 2000, is as follows:-

      Unaudited Somerset financial statements
    as at 30 June 2000
    Pro Forma Financials of Somerset
    as at 30 June 2000
    Pro Forma for the Combined Group
    as at 30 June 2000
    Net Borrowings (S$ million) (1) 831.7 831.7 1,084.5
    Shareholders' Funds (S$ million) (2) 967.7 960.7 1,270.3
    Net Gearing Ratio (3) 0.9 0.9 0.9

     

    Notes:

    1. "Net Borrowings" means the aggregate amount of liabilities arising from borrowings from banks and financial institutions and medium term notes, net of cash and fixed deposit balances.
       
    2. "Shareholders' Funds" means the amount represented by the aggregate of the issued and paid-up ordinary share capital and reserves.
       
    3. "Net Gearing Ratio" means the ratio of the net borrowings to shareholders' funds.