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Plenty of drama from mega deals in Asia in 2013

Publication Date : 16-12-2013


There is little in the corporate sector that can match the nail-biting suspense of giants tussling for a vaunted asset, timing their tactical moves with precision, and the sense of triumph - or disappointment - when a winner emerges.

Singapore started the year on such an exhilarating note in the form of the face-off over Fraser & Neave between Thai beer baron Charoen Sirivadhanabhakdi and Overseas Union Enterprise led by Indonesian tycoon Stephen Riady.

That single mega deal, a spin-off from last year's show stopper involving F&N's Tiger beer brewer, moved the needle in the mergers and acquisition (M&A) scene this year.

Worth US$11.2 billion, the buyout that saw Charoen triumph in January comprised 40 per cent of the US$28.2 billion of M&A deals struck this year, according to the consultancy American Appraisal.

There was another gripping corporate tussle, albeit on a smaller scale, involving WBL Corp.

The technology, auto and property group was bought out by United Engineers but not without a fair share of drama sparked by the opposition from WBL's largest shareholder, Straits Trading Company.

The US$657 million takeover, which turned up in the top five biggest M&As for the year, was finally embraced by Straits Trading after UE sweetened the offer - twice.

Yet in the world of corporate finance, less drama and more deals would be better, say the insiders.

"These big deals make good stories but in the M&A world, it's just one or two deals. If we look at volumes in Singapore, they've remained broadly stable," said Mr Jeff Pirie, Deloitte Southeast Asia's corporate finance advisory executive director.

He may well be right: There were 286 deals between January and November, not markedly higher than the 279 deals done throughout last year.

Temasek Holdings spiced things up when it reshuffled its portfolio and scoured markets for more opportunities. Three of its acquisitions made the top 10 in terms of value.

They included the acquisition of minority stakes in Spanish oil firm Repsol and German chemical maker Evonik Industries.

Temasek also forked out US$500 million for a 10 per cent stake in British-based Markit, founded by Canadian and former bond trader Lance Uggla.

"These deals were all good to see, with Temasek making some adjustments to its portfolio and moving into new areas," said Mr Piers Willis, Rothschild's head for Southeast Asia.

But experts struggle to find a dominant theme that stood out in M&As this year.

"There were various themes involving various sectors. But there was really no single overriding theme," said Willis.

Punters cheer RTOs

Lumpy deals aside, there were six reverse takeovers (RTOs) this year, said American Appraisal.

Some are still pending, and there are a number announced last year that have yet to be completed. They may be small in number but they have stirred a great deal of excitement in the stock market.

RTOs are an investor favourite as they usually signal a new lease of life for struggling firms. Who doesn't like a pick-me-up in their investments?

One announced in August involves Catalist-listed Albedo, a waning steel and raw materials trader. Malaysian tycoon Danny Tan plans to inject huge parcels of land in Malaysia's booming southern growth corridor Iskandar into Albedo with payment in the form of new Albedo shares.

The US$621 million deal, which is the biggest RTO this year, has turned Albedo into an investor favourite.

Rowsley, part owned by Singapore billionaire Peter Lim, completed the transformative S$545 million (US$434 million) acquisition of RSP Architects as well as a piece of waterfront land in Iskandar in October.

There are other RTO hopefuls keen on cashing in on the property rush across the Causeway.

In October, Jubilee Industries Holdings unveiled an RTO by the family controlling Malaysian property builder UM Land that involves injecting Iskandar land.

Another sizeable deal involved the US$481 million RTO of loss-making Contel Corp by global e-commerce social networking firm YuuZoo.

Many of these so-called back-door listings turned the penny stocks into a punters' delight until early October, when the rush was abruptly disrupted by the crash of three counters.

Another flat year?

On a global scale, Singapore's share of M&A deals in terms of value was 1.5 per cent, and 2.2 per cent in terms of the number of deals, said American Appraisal.

Overall, the year's M&A scene was generally "flat", said Willis.

Pirie described it as "in line with expectations", which rather underscores that view.

"2011 and 2012 were very good years. Good things cannot last. We expected this year to be a transition year. Next year will be choppier. That is not necessarily a bad thing as it will separate quality from the rest," Pirie added.

The corporate scene may have to brace itself for a triple whammy next year - falling asset prices; the drying up of liquidity following stimulus cuts in the United States; and rising borrowing costs.

Yet the silver linings in the region that have long been magnets for investments remain intact. They include rising affluence, a swelling middle class, a burgeoning consumer economy, abundant natural resources and continuing liberalisation of key sectors.

"Southeast Asian M&A has long been a heady cocktail of strong growth and high prices. If growth slows, it is possible that asset prices could decline. But the fundamentals underpinning our M&A market still hold true, which will support activity. That is the case, irrespective of what the Fed (US Federal Reserve) does," said Pirie.

The year ahead could see some interesting themes emerge.

European firms have plumped up their coffers and may be ready to look outward to grow on the back of the expected recovery in the region, albeit a fragile one, following the debt crisis.

Similarly, cash-flushed Japanese firms, reinvigorated by reforms at home, will continue their regional investments.

This year saw two such blockbuster plans. One involved Mitsubishi UFJ Financial Group buying 75 per cent of Thailand's Bank of Ayudhya and the other was Sumitomo Mitsui Banking Corp snapping up 40 per cent of Indonesia's Bank Tabungan Pensiunan Nasional. The combined deals were worth an eye-popping US$6.9 billion.

"Japan has definitely not disappointed and this is a strong theme that will continue into 2014," said Rothschild's Willis.

Inbound deals by Japanese firms comprised about 12 per cent of the value of total inbound deals in Singapore with more to come.

The economic uptick in developed markets lends more hope as well.

Yet most experts prefer to remain guarded about how they see corporate activity going next year.

"I am certainly not as bullish as some others. There's not going to be a big jump in deal activity. And no, volumes are not going to fall through the floor either," said Pirie.

If he is correct, another "flat" year awaits dealmakers.


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