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Tough to make right call on F&N

Publication Date : 22-10-2012


Even if Overseas Union Enterprise (OUE) doesn't come up with an offer for Fraser & Neave (F&N), those holding F&N shares who have sold off their stakes may be regretting their decision.

Lippo Group-backed OUE confirmed last Friday that it is looking at its options, including a possible takeover offer for F&N, in the latest twist in the long-running battle for the conglomerate.

If OUE does indeed enter the fray, possibly in tandem with F&N's second-largest shareholder - Japan's Kirin Holdings - its offer surely would pip that of TCC Assets' S$8.88 a share, currently on the table.

TCC is controlled by Thai tycoon Charoen Sirivadhanabhakdi.

F&N shares have already leapt 36 cents to close at S$9.29 last Friday after the announcement of OUE's position at lunchtime that day.

Even before this turn of events, shareholders were mulling over their decision on the TCC offer which closes on October 29.

About a week and a half ago, F&N sent out a circular, prepared by independent financial advisers JPMorgan, which is advising the F&N directors.

Instead of accepting the offer, many shareholders have hedged their bets by selling some of their shares on the open market, and keeping some in hand.

After all, there is no guarantee that Charoen can even cross the 50 per cent mark of acceptances from the nearly 34 per cent that he owns now.

It is only if he achieves more than 50 per cent that the offer will go unconditional, with shareholders who accept his offer getting their money. If not, the shareholders will have their shares returned, the share price may fall below $8.88 and the shareholders will indeed be worse off.

But with the latest developments, shareholders who have sold their shares will regret cashing out so early.

The problem is that the circular, hefty as it is, is a financial analysis.

It focuses on the hard numbers: the valuation of F&N's assets, such as its breweries, its property business and the publishing business.

Pointing out that the offer price of S$8.88 a share was a record is something that many shareholders would have known.

At least, the directors do highlight some points to take note of, where the valuation seems to be a tad on the low side.

For example, the advisers apply a 48 per cent discount to the total value of F&N's assets instead of 30 per cent which is what other companies similar to F&N are trading at.

The directors also note that the stake in its Myanmar Brewery is valued at 7.1 times its profits, while some Asian brewery companies are valued much higher, at 22.5 times.

All this is useful information, but in making the decision, it is the back story or the intangible aspects that provide the vital insights.

For example, shareholders still have little inkling of what the offeror has in store for F&N.

On the one hand, it says the Thai tycoon has a long-term strategic view of the business. On the other hand, it says that Charoen may consider options and opportunities that arise.

Information on whether Charoen is deciding to break up the business or just using it to expand further in Asia would help investors make their own assessment of the future of the company.

There is also little light shed on which particular assets Charoen thought were particularly valuable to his group of companies. Is it property or drinks that is the priority for him?

And there is no discussion on what the relationship might be between the second-largest shareholder Kirin and Charoen.

A discussion of Kirin's business strategy would enable the investor to know if Kirin is willing to play second fiddle, at least in the near term.

Neither is there any discussion of the likelihood of other suitors emerging from the wings given the very attractive assets available.

There is only some mention that investors can accept the offer if they believe that there will not be any competing offer.

Indeed, circulars are getting more and more weighty, quite literally, but offering little by way of useful insights for shareholders to ponder.

Advisers may be wary of sticking their necks out on such points and also because it is not within their remit.

Hence, with a week to go before the offer closes, and in the world of business where there is always uncertainty, a retail investor needs to rely on his own wits and a dollop of luck to make the right call.


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