Singapore Post Limited (SingPost) recently issued an update on its review of its acquisition of TradeGlobal Holdings Inc (TradeGlobal) competed on 16 November 2015. The report (Report), which was issued on 17 July 2017, is an interim summary report focusing on the circumstances surrounding SingPost’s consideration and approval of the acquisition. The Report looked at corporate governance and due diligence issues, and this article looks at various key points arising from the Report.

Background

As noted above, SingPost acquired TradeGlobal in November 2015. It acquired an interest of 96.4% of TradeGlobal for USD168.5 million. The acquisition was made pursuant to a strategy of transforming itself from a traditional postal business to a global e-commerce logistics company.

Almost a year later, on 10 February 2017, SingPost’s announcement of its Unaudited Results for the Third Quarter and Nine Months ended 31 December 2016 stated that due the underperformance of TradeGlobal, its Board was of the view that there was a risk of significant impairment to TradeGlobal’s carrying value. On 12 May 2017, SingPost announced an impairment charge of SGD185 million for TradeGlobal.

As a result of this development, the Board of SingPost formed an Independent Committee to review the acquisition of TradeGlobal. The Report is part of the review.

Key Points Arising from the Report

The Report raised several key points, including the following:

  • Persons involved in the acquisition of TradeGlobal highlighted that it was viewed by SingPost at the time as a key step in SingPost’s strategy to transform from the postal business, which was faced with decreasing profitability and declining business. The decision to acquire needed to be considered against this backdrop.
  • There was a lack of clarity in the structure of the project team handling the acquisition. The Report noted that this was reflected in the fact that there were varying accounts of who was actually leading the project team.
  • The non-executive directors had over-stepped their directorial stewardship role. This had the effect of blurring the roles between the non-executive directors and management and rendered the system of check and balances between the non-executive directors and management less effective.
  • The commercial due diligence was not fully documented. The Report also noted that there may not have been sufficient commercial due diligence carried out, particularly with respect to the seller’s acquisition of its stake which it was selling to SingPost.
  • Certain information which would have been relevant for the Board’s consideration of the acquisition were either not raised to the Board or raised with little detail or explanation. In this respect, the Report noted that the paper and presentation to the Board highlighted positive information but did not highlight certain negative information.
  • Information that was not highlighted included the fact that the seller had purchased its stake in TradeGlobal in 2013 and that the consideration for that purchase was significantly lower than that for the sale to SingPost in 2015. The Report noted that while this purchase was listed as a comparable transaction in the paper to the Board on the proposed acquisition, the figures for this transaction were all stated as “N.A.”. As a result, no detailed analysis of the reason for the difference in price was carried out.
  • Another issue that was not highlighted to the Board was the fact that the valuation of TradeGlobal was based on earnings and revenue forecasts that were aggressive and may have been over-optimistic. The Report noted that it was not highlighted to the Board that the valuation was based on multiples of forecasts of TradeGlobal’s EBITDA that were significantly above the mean of the trading EBITDA multiples for comparable companies.