Charoen keeps rival guessing
A real merger and acquisition war has begun, as Thai tycoon Charoen Sirivadhanabhakdi has decided to send a stern message to Overseas Union Enterprise (OUE), his rival in bidding for control of Singapore-listed Fraser & Neave.
To financial experts familiar with M&As, the message from Charoen is loud and clear: "Back off or pay me more, or I will stand in your way."
As the second extension of his offer expired yesterday, Charoen was expected either to raise his offer price for F&N to beat out OUE, or sell his shares to OUE and bag a handsome capital gain. Rather, he simply extended the offer again to December 11 "or a later date", without raising the bid, apparently on concerns over increasing his leverage position. Moody’s Investors Service recently issued a warning on the high leverage of Charoen’s Thai Beverage, now at four times. In a word, though its nine-month sales revenue rose 31.6 per cent on year to Bt119.56 billion, ThaiBev should not borrow more to finance the deal.
Maintaining his offer at S$8.88 – even though OUE offers S$9.08 – Charoen will lose the game. Even F&N’s board of directors advised shareholders who had accepted Charoen’s offer to change their minds, to get the better price.
But the war is not over.
As of October 17, ThaiBev and TCC Assets – two business entities controlled by Charoen – owned 485.5 million shares in F&N, or 33.79 per cent.
The stake is large enough to block OUE’s plans, even if it bought out all remaining shares in F&N including the 15-per-cent stake from Kirin Holdings. Notably, OUE and Kirin have agreed on an irrevocable deal whereby the latter would sell its 15-per-cent stake in F&N to the former in return for F&N’s beverage business. Now, nothing can guarantee that OUE and Kirin would not face a veto from Charoen.
ThaiBev and TCC Assets’ successful tactic to vote against F&N’s capital reduction after selling direct and indirect interests in Asia Pacific Breweries demonstrates what OUE would face if they all must share the same boardroom.
To get Charoen out of the way, OUE had no other choice but to raise the bid further, until Charoen is satisfied and walks away. At S$9.08, Charoen could sell all shares and net about Bt12 billion.
This explains why F&N’s share price went up 0.21 per cent yesterday to S$9.42. At this price, the stock’s one-year return is nearly 60 per cent.
