The F&N saga: Ensuring the best outcome

SINGAPORE - As share prices go, Fraser & Neave's (F&N) $8.88 close yesterday is about as auspicious as it gets, although its former investors might not be so upbeat.

The stock is now not far off from the final offer price of $9.55 that Thai tycoon Charoen Sirivadhanabhakdi put on the table in January.

F&N shareholders who cashed out then may have some regrets, especially if Mr Charoen takes the company to new heights.

Spare a thought, too, for some OCBC shareholders who are still upset over the bank's move to sell its F&N stake months after the deal was done. One shareholder suggested at the bank's recent annual general meeting (AGM) that OCBC erred in selling the stake too soon and too cheaply.

That question initially arose when the deal was announced last July. OCBC and insurer Great Eastern (GE) would sell their separate stakes for $8.88 per share to Thai Beverage. Their holdings in Asia Pacific Breweries (APB) were to be sold for $45 per share to Kindest Place Groups, a company owned by Mr Charoen's son-in- law.

Mr Charoen later upped his F&N offer to $9.55 per share while Heineken eventually had to pay $53 per share for APB, meaning that OCBC and GE missed out on a tidy sum of a few hundred million dollars.

The disgruntled OCBC shareholder at the AGM was told that the Thai offer was unsolicited and at a good price. It also came as a package - the offer was for both the F&N and APB holdings.

But there could have been another pressing reason OCBC agreed to the sale - a looming deadline.

Monetary Authority of Singapore rules that came into effect in 2001 state that a bank cannot hold more than 10 per cent of a company in a non-financial business.

OCBC Bank had already reduced the level of its non-core assets in part by selling stakes in Raffles Hotel and Robinson & Co.

But F&N was still a large enough asset that needed to be pared, sources suggest.

One way to bring down OCBC's exposure to F&N was simply by offloading more of its stake.

Another way would be if F&N became a smaller company by selling off some of its interests.

Mr Charoen, with his extensive interests in beer and property, probably saw a neat fit and came knocking, as early as 2009 apparently.

He was drawn by the the flourishing property arm and the brewing business - APB's expansion was steaming ahead in Laos and other parts of the region and F&N itself had a toehold in the Myanmar brewing sector.

Mr Charoen was turned down then but by last year, and with the clock ticking, he was in the right place at the right time, with his offer of $8.88 for the

F&N shares and $45 for APB stock.

Observers said the offer prices could well have been the tipping point for the Lee family, who have long held key stakes in both F&N and APB. The three sons of the second generation are now in their 80s and few, if any, in the third generation were keen to oversee the companies. It was time to tidy up the portfolio.

"One was the record price - that price had never been achieved before," a source said.

OCBC and GE also probably knew that it was now or never, in terms of getting what looked to be a handsome price.

It is not clear why Mr Charoen was turned away in 2009. There was probably still some resistance to selling off more of the company.

It is possible that F&N was still evaluating the alternative of how it could restructure itself but breaking up the group was considered heresy by the old guard at the conglomerate.

Former group chief executive Han Cheng Fong was said to be strongly against any break-up. "Over my dead body", is how some insiders described the depth of his opposition to the proposal.

His sudden exit in 2007 was rumoured to be partly caused by his hostility to the idea.

The mood changed after Mr Lee Hsien Yang came on board in October 2007.

Probably, the reason no group CEO was appointed after Dr Han left was a sign that a break-up was at least on the table for discussion. Instead, there were CEOs for the individual business units, such as Mr Lim Ee Seng running the Frasers Centerpoint real estate business, Mr Roland Pirmez for APB, which grew very strongly over this period, and Mr Koh Poh Tiong, who ran F&N's food and drinks business.

But selling off different parts of the business was probably easier said than done, partly because the conglomerate had become so valuable.

Selling off the beer business was complicated as APB was a joint venture with Heineken, which showed it would go all out to protect its interests.

Even Overseas Union Enterprise, headed by Mr Stephen Riady, eyed the property business but only managed to make a counter-bid late in Mr Charoen's campaign, as part of a consortium.

And the directors recognised that conglomerates have their advantages: The sheer size helps provide a stable income stream and deters would-be corporate predators while a larger entity, rather than several separate smaller units, finds it easier to raise money from banks and capital markets.

But whether a break-up was on the cards, in the last few years, F&N shook off its somewhat staid image and came into its own.

The relationship between F&N and its joint venture partner Heineken went back on an even keel, allowing for a better focused expansion plan for APB.

F&N also became a player to be reckoned with on the property front with its serviced apartment and development business. It gained a reputation with its well-managed suburban malls, like Causeway Point and Northpoint.

Whether it was partly solid management or the prospects of tapping into a fast-emerging Asia, F&N had become a desirable prize by last year.

At the final offer price of $9.55 a share, F&N's market capitalisation was more than $13 billion. Its share price had more than doubled since 2007 when Mr Lee joined the board.

People close to the company said once the stock was in play - after the shareholders such as OCBC Bank opted to get out - the board's focus was to make sure it obtained the best outcome for F&N and its shareholders.

That meant either making sure that Mr Charoen put in as attractive a bid as possible, or encouraging competitive bidding so that other bidders - Mr Riady and the consortium, in this case - entered the fray.

When Mr Charoen finally raised his offer to $9.55, all four of the F&N directors who held stock said they would accept the offer.

This included Mr Lee, who said that he would tender his 180,000 shares. Fellow directors Timothy Chia, Tan Chong Meng and Nicky Tan also agreed to accept the offer.

The irony is that F&N is now controlled by Mr Charoen, and the TCC Group, the foreigner and ultimate outsider, may yet keep it intact as one of Asia's great conglomerates.

sushyan@sph.com.sg

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