The articles in the blog are intended for informational purposes only, with the aim of encouraging thoughtful discussions. The articles should not be relied upon as financial advice. Please read the important disclaimer at the bottom of the page before proceeding.

What is a Material Adverse Change Clause and why does it matter?

As someone who loves reading the fine prints of every document, this article discusses the the implications of having a Material Adverse Change (MAC) clause in privatization and restructuring agreements. The inclusion of an MAC gives the offeror the right but not the obligation to walk away from the deal if certain conditions are breached before the completion date. Usually, this involves a certain deterioration of financial performance, such as decreased revenue, net profit, or valuation of assets.

The MAC serves to protect the offeror/buyer, as the financial condition of the target company could have worsened between the time the offer was made, and the completion date of the transaction. If the financial performance of the target company has worsened materially, then it may not be worth as much as compared to the initial deal terms. Hence, the MAC clause serves to protect the offeror, giving them the option to walk away from a deal if the target company has breached the terms of the MAC.

Here, we look at two case studies of how the MAC can be applied to transactions.

Case Study 1: Keppel Corp

On 21 October 2019, Temasek made a partial offer for Keppel shares at $7.35. At the point of the offer, Temasek owned 20.45% of Keppel, and made a partial offer to acquire another 30.55% of Keppel at $7.35 per share. Had the offer been successful, Temasek would have owned 51% of Keppel, with Keppel remaining listed on the SGX.

The offer had a long stop date of 21 October 2020, which meant that the pre-conditions of the offer had to be satisfied by then, or the offer would lapse. This was a 1 year timeframe from the time the offer was first announced.

The Material Adverse Change clause in the pre-conditional partial offer announcement stated that none of the following events should occur following the pre-conditional partial offer announcement date and the formal partial offer announcement date:

1. aggregate provisions for any claim, litigation, investigation or proceeding of the Group should not exceed the aggregate provisions in the Last Financials $500 million or more.

2. any subsequent financials showing a decrease in NAV of the Group by 10% or more from that stated in the Last Financials.

3. cumulative net profit after tax but before non controlling interests (the “PAT”) of the group for the last 12 months ended on the balance sheet date of the latest Subsequent Financials released prior to the formal partial offer announcement date showing a decrease of 20% or more from the cumulative PAT of the group for the 12 months ended 30 September 2019 of $696 million.

For the full announcement details, please head to the SGX website here: https://links.sgx.com/1.0.0/corporate-announcements/GUWX6WTHV0MRDDB3/09a179f691fbe3111a46f03bfc41a2b96c967916d5b72819a23ed396490286ea

Subsequently, Covid-19 hit Keppel hard and resulted in massive impairments. On 10 August 2020, Temasek announced that it would not be proceeding with the partial offer as the MAC clause had been breached. Section (3) of the MAC clause meant that Keppel’s cumulative PAT over four quarters from September 2019 cannot fall by more than 20% from $696 million. However, Keppel reported a loss of $165 million due to impairments of $919 million. Hence, Temasek was able to invoke the MAC clause to pull out of the deal.

Please read the news article here:


Case Study 2: CapitaLand

CapitaLand announced its restructuring on 22 March 2021, which would see its development arm privatised while its investment management arm would continue to be listed as CapitaLand Investment Management. The transaction is expected to be completed in Q4 2021, which is about 6 months from now.

In the case, the MAC relates to the valuations of a portfolio of properties known as the “Identified Properties”. The MAC states that “No Revaluation Notice having been issued in accordance with Clause 3.2A of the Implementation Agreement, or if a Revaluation Notice has been issued, there being no diminution in the Revalued Valuation by more than 10 per cent. as compared with the Agreed Valuation.”

The Identified Properties are as follows: Raffles City Chongqing (excluding components developed for sale), CapitaSpring, Suzhou Center Mall & Suzhou Center Office, Jewel Changi Airport (Retail), CapitaMall SKY+, Capital Square, Rochester Commons, Ascent, 9 Tai Seng Drive, China-Singapore Guangzhou Knowledge City, Ascott Heng Shan Shanghai, Innov Center Phase II, 5 Science Park Drive, Ascendas OneHub GKC and Ascendas-Xinsu Portfolio, details of which are set out in the Implementation Agreement.

The Agreed Valuation, which is the sum of the Individual Value of the properties, is S$6,652,000,000. This means that if there is a revaluation carried out, the combined revalued valuation of the identified properties cannot be more than 10% lower than S$6,652,000,000.

However, the offeror may waive the MAC clause even if it is breached, and still choose to proceed with the deal.  

For the full announcement details, please head to the SGX website here:

My view is that the possibility of the MAC being invoked for this deal is low, as it would require the combined value of the identified properties to be reduced by 10% or more. Capitaland had already taken significant revaluation losses in FY2020. Looking at the locations of the Identified Properties, those in China may be less impacted given that the Covid situation there has been relatively controlled. On the other hand, properties in Singapore, especially tourist dependent ones such as Jewel and Ion Orchard, may see further revaluation losses. Again, in order for the MAC to be invoked, the combined value of the Identified Properties has to fall by more than 10%.

With the Implied Consideration for CapitaLand’s restructuring being $4.102, the current share price of $3.50 may seem attractive. However, an investor would have to balance this against the certainty of the completion of the deal, which depends on a variety of factors, including shareholder approval or even the remote possibility of the MAC being invoked.

Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.

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Should SPH Shareholders take Umbrage at the Proposed Restructuring?

Imagine you are running a company that has multiple lines of businesses. Most of your businesses are doing well, except for your restaurant business that has seen declining profitability. Due to changing consumer preferences, your restaurant has seen falling revenues over the past decade, but was still profitable all along. Recently, due to Covid-19, your restaurant has recorded its first-ever loss in FY2020.

Now, because you believe that your restaurant would continue to make losses in the future, you want to get rid of your restaurant business. You look around for potential buyers/takers, and I offer to take over your failing restaurant business.

What would be a fair price for this business?

Suppose I told you – firstly, you will had over your business to me. Additionally, I want you to give me $80 million in cash and $30 million in shares of your company and your subsidiary. I also want you to give me two buildings – the building that your restaurant operates in, and also the corporate office of your restaurant, worth a combined $147 million. All in, you have to give me around $250 million to take over your failing restaurant business.

What would you say?

You’d probably wonder why I’d even propose such a deal. You might even think I’m crazy.

But that’s the deal on the table for SPH shareholders as part of the restructuring exercise. Talk about taking umbrage!

The Public Reaction

When I first watched the clip of the CEO’s heated response to the journalist, I honestly found it hilarious. How dare you! But I did not expect this to blow up into such a sensational issue. A lot has been said about the competency of having retired generals taking up roles in the private sector. My view is that it all boils down to corporate experience and culture.

Take the example of Mr Chew Shouzi, the Singaporean who recently took over as the CEO of TikTok. Similar to our public sector scholars, Mr Chew has stellar academic credentials, earning his undergraduate degree at UCL, followed by a Havard MBA. Subsequently, his career path included a stint at Goldman Sachs as an investment banker in the Technology, Media & Telecommunications sector, followed by making partner at a leading Tech-focused venture capital fund. During his tenure as the CFO of Xiaomi, he led their IPO process in Hong Kong. In his most recent role, he was the CFO of ByteDance (Tik Tok’s parent company) before assuming the role of TikTok CEO. All round relevant experience in the Tech and Media sector.

Now, if you could choose, what profile would you pick to be the CEO of SPH?

On the point of culture, in organisations where seniority takes absolute precedence, individuals in senor positions may be blindsided by issues on the ground, especially if their subordinates constantly seek to paint the best picture. Over time, one may be entrenched in such systems, and may find it difficult to adapt to roles which require innovation in competitive industries.

This is a systemic issue, and I came across an excellent article on Quora which discusses the issue.


What’s Next for Shareholders?

Shareholders would have to vote on the proposed restructuring sometime in July/August 2021. Since it is and EGM, it probably requires the approval of 75% of shareholders for the restructuring to proceed. I spoke to an SPH shareholder, who somehow seems to think that the deal would definitely go through, as there are substantial shareholders who would definitely support the deal. However, this is not true, as under the Newspaper and Printing Press Act, nobody can become a substantial shareholder of SPH without the approval of the Minister. Hence, no shareholder controls more than 5% of SPH shares, and 99.9% of SPH shares are held by the public, as per its 2020 Annual Report.

I think some shareholders may have been confused with the management shares class that SPH issues. Basically, the management shares only have greater voting power (200 votes per share vs 1 vote per share for ordinary share) when it comes to issues such as appointing or dismissing directors or any member of the staff of the company. In all other situations, ordinary shares are entitled to the same voting rights (1 vote per share) as the management shares. Currently, there are 16.3 million management shares, compared to 609.3 million ordinary shares. Hence, the voting power during the EGM on the proposed restructuring lies in the hands of each and every SPH shareholder.

What are the potential scenarios?

1. As per the analogy described above, shareholders decide that the best choice would be to give away c.250 million in cash and kind, to get rid of the underperforming media business. The proposed restructuring gets approved.

2. Shareholders decide that giving away c.250 million to dispose the underperforming asset is ridiculous. Shareholders request that the management seek a better deal for them. Ideally, the CLG is seeded with cash from “private and public sources” first, which then buys over the media business from SPH on a willing buyer, willing seller basis. For a reference, Alibaba acquired the South China Morning Post for $266 million USD in December 2015, in an all cash deal. Alternatively, variations of the financial terms of the deal could be negotiated, for example, SPH pays less than $80 million, or SPH does not transfer SPH News Centre and Print Centre (worth a combined $147 million) but instead rents the building to the CLG, and continue to collect rental income. Finally, sometime down the road, the financial aspects of the become more acceptable to SPH shareholders, and they approve of the transaction.

3. The proposed restructuring is not approved by Shareholders, and SPH Media remains part of SPH for the foreseeable future. SPH Media is *expected* to make losses over the next few years. Do note that SPH Media has always been profitable pre-pandemic, and only recorded its first loss ever due to Covid-19. What I find interesting is that for companies that have always been making losses (Grab, WeWork etc), they always project some improvement to profitability in the future, no matter how far-fetched it may sound to some. Now, we’re seeing the exact opposite, where a business segment that has always been profitable, is expected to “incur losses and widen” over the next few years. My point being – what really happens in the future is really anyone’s guess.


Much of the debate has been around the issues of editorial integrity, advertiser interests, quality of journalism and the like, but the decision the SPH shareholders face is essentially a financial one. However, if we were to see SPH Media from the perspective of serving as a “public good”, as the provider of news and information to the public, then the issue becomes about who should bear the cost of providing public goods? Should it be the taxpayers, in the form of Government financing, or should it be the SPH shareholders (who are most likely taxpayers themselves too), who have already seen the value of the investments declined so drastically, and yet are expected fork out an additional $250 million? Tellingly, the SPH shareholder is the one with the power to decide, not the taxpayers.

There are definitely no easy answers, but I’m sure we would all be watching closely on how this plays out.

Disclaimer: This article is intended for informational and discussion purposes only, and do not constitute financial advice. When in doubt, please contact a licensed financial adviser.

Note: As of writing, I do not have a position in SPH. However, my positions may change from time to time without further any updates to this post. 

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