ESR Buyout Consortium Makes $7.1B Binding Offer

A consortium of investment firms including Starwood Capital, Sixth Street Partners, SSW Partners, the Qatar Investment Authority and Warburg Pincus has made a binding offer to buy out ESR which values the industrial developer and fund manager at nearly $7.1 billion.

In an announcement to the Hong Kong stock exchange late on Wednesday, ESR and MegaBidco, an entity formed by the consortium, said that investment group has made a binding offer to acquire all ESR shares that it does not already own for HK$13 ($1.67) each.

The offer comes more than a half year after Starwood Capital, Sixth Street Partners, SSW Partners first proposed to buy out the company, with the since-expanded consortium having gained acceptance of the proposal from more than 51 percent of disinterested shareholders, according to the announcement. Together, the partners already own 39.9 percent of ESR’s total issued shares and need to receive acceptance from 75 percent of disinterested shareholders for the offer to succeed under Hong Kong privatisation rules.

In a press release, ESR and the consortium positioned the buyout scheme as a way to transform a company which has seen its share price decline by over 35 percent since its IPO in 2019. The company’s stock reached a high of over HK$29 per share in January 2021, and was trading as low as HK$7.45 per share earlier this year.

“A strategic transformation is required to realise the Company’s platform value,” the statement said. “To effectuate this transformation, the Company needs to transition to an asset-light platform, re-focus on New Economy sectors, simplify its current portfolio with non-core asset divestitures, realise cost synergies and optimise its balance sheet.”

Investors on Board

The buyout offer gives shareholders the option to receive cash, shares or a combination of the two, with the HK$13.00 cash offer representing a 55.7 premium over the stock’s HK$8.35 price on 24 April, before the consortium made its initial offer in May.

The deal values ESR at HK$55.2 billion and would make the buyout the largest privatisation from the Hong Kong Stock Exchange since 2021, should it be successful.

On Wednesday, the consortium received irrevocable undertakings from shareholders including the Ontario Municipal Employees Retirement System (OMERS), ARA Asset Management co-founder John Lim, Dutch pension fund manager APG, Singapore’s Straits Trading Company Limited and Japan’s Sumitomo Mitsui Banking Corporation (SMBC) accepting the offer, according to the HKEX statement.

Lim, Straits and APG have all opted to receive cash for their shares, SMBC has chosen to be compensated in shares, and OMERS will take share compensation for around 319 million of the 456 million shares in ESR that it currently owns, or around 70 percent of its holdings as of the announcement date. APG had been an early investor in ESR, with OMERS taking a cornerstone stake in the company’s 2019 IPO. Lim and Straits became substantial ESR owners through the company’s $5.2 billion buyout of ARA in 2022.

ESR has now received irrevocable undertakings backing the privatisation from investors holding approximately 30.79 percent of the company’s total issued share capital and approximately 51.24 percent of stock held by disinterested shareholders as of Wednesday, according to the statement.

Morgan Stanley and the Hong Kong branch of Deutsche bank are serving as co-lead financial advisers to the consortium, with the US bank acting as sole structuring adviser. Goldman Sachs and UBS are acting as joint financial advisers, while United Overseas Bank Limited is advising on capital structure.

Latham & Watkins LLP and Kirkland & Ellis are acting as legal counsels to the consortium for the proposal, while JLL is the consortium’s real estate advisor on the deal.

Streamlining Planned

The privatisation will allow ESR to “transition to an asset-light platform, refocus on new economy sectors, simplify its current portfolio with non-core asset divestitures, and optimise its balance sheet,” according to the statement.

With these moves seen as potentially disruptive for a publicly listed company, the consortium portrays the privatisation as a way to transform the company away from short-term market pressures.

With the consortium having made the binding offer, an independent financial advisor will be tasked the advising an independent board committee on the deal, with the company planning to name an advisor in a future announcement.

Once the company has received guidance from the independent advisor, the details of the binding offer will be presented to shareholders for approval.

Formed by the 2016 merger of China’s E-Shang and Japan-based Redwood Group, ESR has grown into a investment manager with $154 billion in assets under management as of 30 June.

Starting out building warehouses for e-commerce and shipping, the company has branched out into data centres and other fast-growing sectors across Japan, Korea, Australia, China, Southeast Asia and India.