F&N advisers shrug shoulders at OUE's offer

PHOTO: F&N advisers shrug shoulders at OUE's offer
Above photo is Thai tycoon Charoen Sirivadhanabhakdi.

SINGAPORE - It will take more than an additional 20 cents per share to nudge Fraser and Neave's (F&N) independent financial advisers into calling a general offer anything more than "not compelling but fair".

JPMorgan issued that opinion in its assessment of a $9.08 per share on wednesday.

That was the same phrase JPMorgan used in an October report on a rival $8.88 per share bid by companies controlled by Thai tycoon Charoen Sirivadhanabhakdi.

But JPMorgan also raised its valuation for F&N in the two months that has passed between the reports.

On a sum-of-the parts basis, F&N is worth $8.58 to $11.56 per share, JPMorgan said in the latest document.

In October, F&N's break-up value was estimated at between $8.30 and $11.22 per share.

F&N's independent directors accepted JPMorgan's advice.

As was the case with the Thai offer, the independent directors stopped short of an outright recommendation for or against the offer.

But in both cases, the independent directors highlighted that the respective offers lay at the low end of JPMorgan's valuations.

The directors also felt that JPMorgan's valuations were conservative and pointed out that the company's majority stake in Myanmar Brewery represented exposure to a "unique asset".

In the latest circular to shareholders, the independent directors also took the additional step of emphasising that OUE's offer price - and Mr Charoen's as well, by default - was below current market prices.

F&N shares closed at $9.66 on wednesday before the circular was released.

JPMorgan's higher valuation for F&N came largely on the back of improved estimates for the book value of F&N's properties - in which developer OUE is chiefly interested.

The valuation for the property business was increased to between $4.6 billion and $7 billion, from between $4.4 billion and $6.8 billion in the previous report.

The valuation of F&N's food-and-beverage business was raised to between $7.5 billion and $9.4 billion, from the previous range of $7.4 billion to $9 billion, largely on an increased price tag for the Malaysian unit.

Japanese brewer Kirin Holdings, which holds 14.8 per cent of F&N's stock, has agreed to accept OUE's offer in exchange for getting F&N's food-and-beverage business for $2.7 billion if the OUE offer succeeds.

Mr Charoen, whose privately held TCC Assets is fronting his bid in concert with his listed brewer Thai Beverage Public Co, is believed to be keen on both the property and beverage arms of F&N.

Both the OUE and Thai tenders are conditional upon the offeror gaining majority control of F&N.

DMG & Partners analyst Goh Han Peng said "it is not surprising to see the same 'not compelling but fair' comment" because of the modest difference between both offers.

But Mr Charoen, whose total holdings of shares owned and acceptances received currently stand at about 34.7 per cent, is still ahead of OUE in the race for control.

OUE's stake is just a sliver over the 14.8 per cent committed by Kirin.

"Mr Charoen's consortium continues to hold the first-mover advantage in this takeover tussle by virtue of his larger shareholding in F&N and he is putting the ball in the court of the OUE consortium to make the next move," Mr Goh said.

"The limit to this waiting game will be the Jan 21, 2013 date, when both parties have one last chance to raise their bids in the absence of new competing offers.

Either party could now fire the next salvo by raising its offer, but the pressure is higher on OUE to act first.

In the end, the bidding war will escalate to a valuation that reflects the offerors' assessments of the intrinsic value of F&N.

"Mr Goh added that $11 per share is "probably a fair estimate of the private market value of F&N in our view".

The Thai offer lapses at the close of Jan 2, while OUE's offer will expire the day after that.

According to Singapore's takeover regulations, both parties have until Jan 21 to put forth their final offer.

Mr Goh thought that although Mr Charoen stands to reap a handsome profit if he sells his shares to OUE, the Thai is unlikely to back down without throwing a few more punches.

"Given the amount of effort the Thais have put in to accumulate and control F&N, the gains will have to be quite substantial for them to quit the fight," Mr Goh said.

"There are many areas of synergies that ThaiBev can generate by working with F&N on the F&B side, besides getting a regional platform for its current businesses. If Mr Charoen can get majority control of F&N, he might even do a stock merger of F&N and ThaiBev in future."