Charoen faces uphill task to expand empire

This is a must, as Overseas Union Enterprise Group (OUE) announced on Thursday night a bid to take over at least 50 per cent of F&N with an offer of 9.08 Singapore dollars per share. The offer is lower than F&N’s closing price of S$9.13 on Nov 16, but higher than the S$8.88 offered by Charoen’s TCC Assets Co Ltd. 

The S$9.08 counter-offer values F&N near the middle of the S$11.9 billion-$16.1 billion (Bt297.91 billion-Bt403.05 billion) range estimated by F&N’s independent financial adviser JPMorgan.

Charoen’s offer values the Singapore conglomerate at around S$12.8 billion.

If successful, the counter-bid, worth S$13.1 billion, could transform Overseas Union into Singapore’s No 1 listed residential developer, in Southeast Asia’s largest-ever M&A deal. Existing for 129 years, F&N now has an extensive beverage network in the region and a vast array of assets.

Two options for Charoen are foreseeable.

He could end the fuss and walk away with a big gain. Charoen’s group could sell all shares held to OUE for S$4.4 billion. Given the fact that TCC accumulated the shares when they were traded below S$8 apiece, Charoen would reap an immediate gain of more than S$1 per share, or about S$500 million (about Bt12 billion).

Still, Charoen, 68, has spent decades building up his empire but its revenue is still nearly entirely generated in Thailand. Despite its promising economic outlook, Thailand (population 70 million) is rather small compared with the entire Asean region, which has a combined market of 600 million people. Acquiring F&N would spare him to the need to build up a regional logistics network, which could take years and entail massive investment. Notably, F&N’s empire goes beyond Asean. It is presently in more than 30 countries spanning Asia-Pacific, Europe and the United States, with 17,000 employees worldwide.

The other option – whereby he would raise the bid and fight to the end – looks more plausible. 

As of November 8, TCC Assets and its group held 484.46 million F&N shares, representing an approximately 33.6-per-cent stake. At S$8.88, buying out the remaining 953.88 million shares would cost TCC an additional S$8.7 billion. 

Reuters quoted Jit Soon Lim, the Southeast Asian equity research at Nomura, as saying in a note to clients: “OUE’s offer is likely to be the first salvo in this fight. TCC is likely to counter-offer as it will want to defend its interest in the group.”

If the two families lock themselves in a fight, F&N’s share price could rise to S$10. Deutsche Bank retains a “buy” call with a S$9.42 target. CIMB Research raised its target price for the stock to S$9.85. Nomura has a “buy” rating and a S$10.19 target price on F&N stock. 

In this merger-and-acquisition war, Charoen is contending with one of the region’s most powerful tycoons – Indonesian Stephen Riady. Riady is the chairman of Overseas Union as well as Hong Kong-listed Lippo Ltd, which owns a majority stake in the Singapore firm through its subsidiaries. He is also the president of Indonesia’s Lippo group of companies founded by his father Mochtar Riady. 

Fighting against Riady, Charoen may need to change tactics, aside from the need for a higher bid. Since launching the offer in September, Charoen’s group has been criticised for a total lack of communication with analysts or F&N shareholders, and failing to share his vision for F&N after the takeover.

Riady seems clearer on what OUE wants from F&N.

In a statement released after the offer was announced, he said: “F&N is a Pan-Asian consumer group with strong standing in property, food and beverage, publishing and printing industries. Its property portfolio would be highly complementary to OUE’s existing property portfolio. Combining both will further strengthen OUE as a leading property player in Singapore and expand our footprint in Singapore and regionally. With a successful track record in developing iconic properties in Singapore, we intend to enhance F&N’s properties with our expertise in property development and management.”

Riady also seemed committed to his ambition. To ensure a successful bid, aside from offering a higher price than Charoen, OUE has struck an irrevocable deal with Kirin Holdings. The Japanese beer company agreed to sell 212.77 million shares, or 14.8 per cent, in F&N for S$2.7 billion.

OUE set up OUE Baytown in Singapore as a special purpose vehicle, to take over F&N. Advising it are Credit Suisse (Singapore), Merrill Lynch (Singapore) and CIMB Bank. OUE Baytown is a wholly owned subsidiary of Arbon, a company incorporated in Singapore, which is in turn wholly owned by Arbon Holdings Ltd (Arbon Holdings), a company incorporated in the Cayman Islands half-owned by OUE and half by Orange Circle Investments Ltd. 

On anticipation of a fight between the two families, F&N’s share price has risen. Yesterday, it opened higher at S$9.26, before peaking at S$9.36 and ending the day at S$9.28. 

With the higher offer from OUE, F&N’s board of directors advised shareholders who had already accepted TCC’s offers under the Singapore Code on Take-overs and Mergers that their acceptance could be revoked, if TCC’s offer has not been declared unconditional.