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Will auction raise bids for F&N?

Publication Date : 17-01-2013


Market watchers are divided over whether a novel auction process will draw higher offers from the rivals fighting for control of Fraser & Neave (F&N).

Some observers said Thai tycoon Charoen Sirivadhanabhakdi and property firm Overseas Union Enterprise (OUE) have come so far in their quests to snare F&N that they are unlikely to give up now.

But others doubted that higher bids would be forthcoming, even with the pressure of the auction.

The Securities Industry Council (SIC) said on Tuesday night that an auction framework would be used to end the stalemate over the tussle for the conglomerate.

It starts on January 21 and involves both parties lodging higher offers until one declines to go higher, in effect throwing in the towel.

Charoen launched his $8.88 per share F&N general offer last September, before an OUE-led group announced a $9.08 per share counter-bid in November.

In the months since, both parties have extended their deadlines without raising the offers closer to the market price. F&N shares dipped four cents to S$9.66 yesterday, with investors still hopeful that a bidding war will ensue.

The key question is whether Charoen and OUE will take part in the auction and raise their offers. Spokesmen for OUE and Mr Charoen's Thai parties declined to comment yesterday, but there was no lack of speculation given that corporate Singapore has never seen anything like this auction in living memory.

"The auction process will force the hands of the contenders and there will likely be higher bids from them," said DMG & Partners analyst Goh Han Peng.

"Both sides are keen on F&N and it will be strange if they don't participate."

But others question whether the parties will raise their bids significantly, noting that the new property cooling measures would have reduced their valuations of F&N's residential real estate unit.

There will also be questions over OUE's debt levels if it raises its offer.

Daiwa Capital Markets analyst David Lum calculated in November - when OUE announced its offer - that the S$9.08 offer price would lift OUE's net debt to assets ratio to 41.1 per cent from 33.8 per cent, assuming it finances the move with debt.

That ratio would be higher than OUE's peers' although Lum said he would not regard the debt as excessive.

F&N's second largest shareholder, Kirin Holdings, has tendered its 14.8 per cent stake to OUE and agreed to buy F&N's food and beverage business for S$2.7 billion if the OUE offer is successful.

There has been no word of a higher Kirin offer - and OUE could need the extra cash in order to raise its own F&N offer.

If OUE does not make a move in the auction, Charoen would have no need to act.

Even if he returns all his acceptances he would still have more than 33 per cent of F&N. That will give him a "pre-eminent position in deciding the management and board composition" of the firm, said corporate lawyer Robson Lee.

"He will be the single largest shareholder. Nobody can outvote him, unless other shareholders come together to vote against him. It's not an impossibility but the likelihood is not very high."

Regardless of whether the auction draws higher bids, investors will be relieved that it will bring matters to a head.

"This auction procedure is to have an orderly and transparent process to bring closure to the whole saga," said Lee. "By January 21, we will know if either party is increasing its bid. This process brings clarity and finality."

Remisier Desmond Leong called the auction "a good idea".

"(The rival bidders) keep dragging and dragging, it's wasting everyone's time. The people who want to trade it (F&N stock) are affected by the uncertainty."

US$1 = S$1.22


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