Takeovers spicing up local market at year end

PHOTO: Takeovers spicing up local market at year end

REGIONAL markets may suffer a knee-jerk sell-off as they react to Wall Street's drop on "fiscal cliff" fears last Friday.

But while the nail-biting drama in Washington had the attention of the world's traders, as US lawmakers raced against time to cut a deal to stop massive tax increases and spending cuts from taking effect in a week's time, there have been other concerns preoccupying traders here.

These are the takeovers currently under way whose outcomes are by no means certain. They have livened up trading considerably, even as the curtains draw on the trading year.

True, Dutch brewer Heineken's bid to buy up the remaining 4.3 per cent of Asia Pacific Breweries (APB) it does not already hold looks like a formality, after it successfully completed its acquisition of Fraser & Neave's stake in the Tiger Beer maker.

But the same conclusion cannot be drawn on the takeover of F&N, which is the subject of a bidding war between Thai billionaire Charoen Sirivadhanabhakdi and a consortium led by Overseas Union Enterprise (OUE).

In September, Mr Charoen offered $8.88 apiece to buy up the rest of the beverage giant - the same price he had paid for the stakes which had been sold to him earlier by OCBC Bank and Great Eastern Holdings. Two months later, however, OUE entered the fray with a counter-bid of $9.08.

But the upward trajectory of F&N's share price, as it was chased up to $9.70 last Friday, suggests that both offers will fail, unless one side makes a more attractive bid.

Is this possible? JP Morgan, the independent financial adviser, had described both offers in similar terms - not compelling but fair. It had also ascribed a range of $8.58 to $11.56 for each F&N share, as it commented on OUE's offer last week.

But so far, Mr Charoen is holding his cards close to his chest, despite various efforts to fathom his intentions.

His takeover vehicle, TCC Assets, even cast doubt on a Bloomberg story suggesting that he had tried to buy an additional 10 per cent F&N stake from institutional shareholders. It clarified that, from time to time, it had been "approached by shareholders and/or brokers in relation to potential sales of shares in F&N".

But the relatively small premium which OUE is prepared to pay over Mr Charoen's offer suggests that a big margin of safety is needed in order to unlock the hidden value in F&N's property assets, as projected by analysts' sky-high valuations of its shares.

This is despite the various sweeteners OUE had been given - the backing of Kirin Holdings, F&N's second-biggest shareholder with a 14.8 per cent stake, which had also agreed to buy the beverage giant's food and drinks business for $2.7 billion if its bid is successful, and a break-up fee, subject to a cap of $50 million, if it loses to another bidder.

So as the countdown to the New Year begins in earnest, those who snapped up F&N shares in anticipation of an acceleration of the bidding war must be wondering if it will materialise.

Sure, the $5.6 billion which F&N got from Heineken for parting with APB makes it a desirable mating target, but the considerable dowry which the market is expecting from the suitors is making them hesitant.

And what of the effort in progress to privatise upmarket condo developer SC Global? It remains to be seen if businessman Simon Cheong will raise his offer price of $1.80, now that its share price is trading well above the offer price.

One market observer believes that, either way, Mr Cheong has already come out the winner.

He said: "If privatisation succeeds, he gets what he wants. If it fails and the share price drops but not necessarily back to the pre-takeover price of $1.20, he will be able to do a rights issue and raise funds at a higher price than what he would have been able to do previously."