Fraser & Neave Finally Fully Valued as Deal Closes

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Thailand’s richest man Charoen Sirivadhanabhakdi is all set to become even richer. The drama surrounding the acquisition of the Singapore’s property and drinks conglomerate Fraser & Neave finally came to an end when Charoen’s rival bidder, a consortium of investors led by the son of the famed Indonesia based billionaire Mochtar Riady decided to drop out. Stephen Riady and his firm Overseas Union Group decided not to raise its offer when Charoen’s privately held firm TCC Assets raised its bid for the stake F&N it did not already own to $7.78 (S$ 9.55) per share, valuing the company at $11.19 billion. Since the beginning of 2012, TCC Assets owned a 30% stake in F&N. In September, it came forward with its takeover bid valued at $7.24 per share as it purchased an additional 10% shares of F&N. A rival bid by Overseas Union Group prompted TCC Assets to raise its call, and the latter finally ended up making an offer 5.2% above Overseas Union’s bid that valued F&N at $10.60 billion.

F&N has significant representation in iShares MSCI Singapore Index Fund ETF (NYSEMKT: EWS) while Charoen’s companies listed in Bangkok are represented in the iShares MSCI Thailand Investable Market Index Fund ETF (NYSEMKT: THD). Mochtar Riady is the owner of Lippo Group, whose subsidiaries, including Lippo Karawaci, are represented in the MSCI Emerging Markets Small Cap Index Fund ETF (NYSEMKT: EEMS).

The deal still requires approval from F&N’s shareholders, but there is little doubt that will be an issue. However, Japan’s Kirin Holdings also holds a 14.8% stake in F&N and had earlier said that it would work with Overseas Union to purchase F&N’s food business for $2.2 billion. With Overseas Union out of the picture, it is not yet clear what Kirin plans to do.

This four-month long bidding war has highlighted the increasing ambitions of Charoen Sirivadhanabhakdi as the shares of his other businesses rose to record levels in Singapore and Thailand, adding nearly $2.35 billion to his wealth. Shares of Thai Beverage Pcl, otherwise known as ThaiBev, have gone up by 40% on the SGX in the last three months while Berli Jucker has risen 11.3% in Bangkok. The shares are currently trading at all-time highs along with the SET Index, which is up 5.8% in January while the Straits Times Index (STI), which covers Singapore, is up 3.4%.

F&N is a 130 year old consumer product empire with operations across Southeast Asia that generate $2.9 billion in annual sales. With F&N’s beverage business in his pocket, Charoen will be looking to integrate its operations with ThaiBev while TCC Asset’s relatively smaller real estate operations will receive a boost from F&N’s property portfolio, worth more than $6.52 billion.

However, it is worth noting that Overseas Union’s decision not to increase its bid was based on its belief that Singapore’s property market, after the recent government actions, is not attractive enough to justify more than $10.6 billion for F&N. The new measures introduced in mid-January are the latest aimed at cooling down real estate prices by increasing taxes and duties without the MAS giving up its peg to the Federal Reserve’s interest rate scheme. For foreign buyers and corporations, the buyer’s stamp duty rate of 10% of purchase price has been increased to 15%.  A new seller’s stamp duty of 5-15% has been introduced for all industrial properties that are re-sold within three years of purchase.   

Singapore’s private home prices increased by 0.6% in Q3-2012, and this growth accelerated to 1.8% in Q4. This is in stark contrast to the country’s GDP, which nearly avoided an anticipated recession in Q4 when actual GDP growth turned out to be a positive 1.1%. Overall, the country’s economic growth has slowed from 4.9% in 2011 to just 1.2% in 2012. The property market is still one that is caught between capital flight from the West and overly-attractive borrowing rates locally. However, F&N would be somewhat insulated because it has little exposure to the country’s real estate sector compared to the bigger property developers such as Capitaland, CityDevelopments and Keppel Land. 

<table> <tbody> <tr> <td> <p> </p> </td> <td> <p>EWS</p> </td> <td> <p>THD</p> </td> <td> <p>EEMS</p> </td> </tr> <tr> <td> <p>Stock 6M</p> </td> <td> <p>5.82%</p> </td> <td> <p>23.53%</p> </td> <td> <p>17.40%</p> </td> </tr> <tr> <td> <p>P/E</p> </td> <td> <p>14</p> </td> <td> <p>11</p> </td> <td> <p>11</p> </td> </tr> <tr> <td> <p>Yield</p> </td> <td> <p>4.01%</p> </td> <td> <p>1.85%</p> </td> <td> <p>4.79%</p> </td> </tr> <tr> <td> <p>Exp ratio</p> </td> <td> <p>0.52%</p> </td> <td> <p>0.62%</p> </td> <td> <p>0.69%</p> </td> </tr> <tr> <td> <p>Top Holding</p> </td> <td> <p>DBS Group (10.75%)</p> </td> <td> <p>Siam Comm. Bank (9.20%)</p> </td> <td> <p>Brait SA (0.43%)</p> </td> </tr> <tr> <td> <p>Top Sector</p> </td> <td> <p>Fin. Services</p> </td> <td> <p>Fin. Services</p> </td> <td> <p>Technology</p> </td> </tr> <tr> <td> <p>Top Country</p> </td> <td> <p>Singapore (98.6%)</p> </td> <td> <p>Thailand (99.8%)</p> </td> <td> <p>Taiwan (17.76%)</p> </td> </tr> </tbody> </table>


The real question, however, is whether in the end TCC Assets overpaid for F&N.  The beverage market in Southeast Asia is growing rapidly but with Heineken getting the lucrative Tiger Beer portion of F&N’s portfolio last fall, this may become a value trap between an over-priced property portfolio and less lucrative soft-drink and food business.  In a bidding war this intense it is more than likely that management extracted nearly full value of the company.  Any appreciation now will likely be in sympathy with the STI. 

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