The Hong Kong Stock Exchange is about to see its largest privatization project since 2021.

On the evening of December 4, $ESR (01821.HK)$ Disclosure announcement, the consortium led by Warburg Pincus, Sixth Street, and SSW Partners (hereinafter referred to as the "offeror") intends to privatize ESR through an agreement arrangement. ESR will resume stock trading on December 5.

The overall equity valuation of ESR in this privatization is 55.2 billion Hong Kong dollars (7.1 billion US dollars). For comparison, ESR had a total market capitalization of approximately 48.5 billion Hong Kong dollars before the suspension on November 29, with a privatization premium of about 14% over the current market value.

ESR Group is one of the world's largest publicly traded real estate asset management companies. The group focuses on real estate in the xinjingji sector, providing modern solutions such as logistics, datacenters, infrastructure, and wind power for customers. As of June 30, 2024, the total assets under management reached 154 billion US dollars.

It is reported that the purpose of the offeror initiating privatization is to fully realize the platform value of ESR in the long term.

The offeror believes that ESR must successfully transform into a light asset platform, re-focusing on the xinjingji sector, simplifying its current investment portfolio, spinning off non-core assets, and optimizing its balance sheet. This strategic move may cause significant short-term profit volatility. The offeror believes that the strategic transformation is best carried out in a private environment to avoid short-term market pressures and listing rule restrictions.

In addition, privatization also helps ESR's shareholder registry transformation, bringing in experienced world-class investors whose long-term funds will support the company's strategic transformation and growth, while maintaining a prudent and effective governance structure to protect the interests of minority shareholders.

Among the various tender offerors, in addition to GLP Capital Partners, Sixth Street, and SSW Partners leading the way, it also includes Qatar Investment Authority (QIA), Hillhouse Capital, and company founders participating, with these shareholders collectively holding 39.9% of ESR's issued shares. Among them, GLP, since its establishment in 1991, has always centered on global real estate, raising over $80 billion in funds accumulated, with current assets under management approximately $115 billion.

Specifically, the tender offerors provide ESR shareholders with cash options, stock options, and a combination of cash and stock, three options.

Among them, the cash option is HK$13.00 per share. This price represents a 55.7% premium to the closing price of HK$8.35 per share on April 24, 2024, the day before the non-binding offer; and a 199.1% premium to the unaudited pro forma net tangible asset value per share of HK$4.35 as at June 30, 2024.

Shareholders opting for the stock option will convert their arranged shares on a 1:1 basis into EquityCo shares, advancing strategic transformation initiatives in the new entity with the consortium to realize ESR's long-term platform value.

The offerors stated that the cash option in the tender offer provides shareholders with definitive short-term liquidity and a significant premium. The offerors further note that since the consortium's initial contact with the company in May 2024, the cancellation consideration under the proposal has been raised twice, with the cancellation consideration now finally determined and will not be increased further.

It is reported that the tender offerors have already received irrevocable commitments from shareholders holding 51.2% of the arranged shares held by unrelated shareholders to support the proposal. These shareholders include Ontario Municipal Employees Retirement System, Lin Huizhang, APG, Strait Trading, and Sumitomo Mitsui Banking Corporation.

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