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All eyes on Charoen as OUE set to reveal F&N move

Charoen Sirivadhanabhakdi and his wife, Khunying Wanna

Charoen Sirivadhanabhakdi and his wife, Khunying Wanna

November 15 will be another historic day for both Thai tycoon Charoen Sirivadhanabhaki and Singapore-based Fraser & Neave's shareholders.

To Charoen, Overseas Union Enterprise's announcement, scheduled to be released on Thursday, will suggest whether he has to engage in a tug-of-war for control of the F&N. It is expected that if OUE really wants to be in the game, it will need to offer F&N shareholders more than Charoen's TCC Assets' offer of 8.80 Singapore dollars. And if Charoen is really serious about having F&N as a vehicle to grow his business regionally, he will need to up the offer.

Notably, F&N closed last week at S$9.19 (Bt230) as shareholders expect a war between Charoen and OUE. The share price has been rising continually since August when Thai Beverage, a flagship business of Charoen, first announced an intention to take over Asia Pacific Breweries - which eventually fell into the hands of Netherlands-based Heineken. F&N's value has been rising as capital gains from the S$5.6-billion sale are not yet distributed to shareholders.

Before that, not a single analyst had the courage to value F&N shares at S$8.80 apiece. Now, many analysts in Singapore seem to be outdoing one another in bidding up the target price for the stock.

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. Based on the target prices, Charoen's offer, which represented a 4.3-per-cent premium over F&N's September 12 closing price, looks timid.

Will Charoen raise the price?

According to a source close to Charoen, F&N is an integral part of his plan for regional presence, particularly in the beverage industry.

"It's easy to set up a plant to produce bottles or products, but the success factor is logistics, to get the products to consumers. F&N's network would help," the source said.

Established in 1883, F&N today ranks among Southeast Asia's leading companies and its core businesses are the production and sale of soft drinks, dairy products, property investment and development, publishing and printing. F&N derives more than half its revenues from property holdings and has a profitable business selling F&N-branded soft drinks, mostly in Malaysia and Singapore.

According to estimates by Breakingviews, a British financial publication, F&N's consumer business is valued at about S$6.7 billion, while the property division is valued at S$6.1 billion.

Charoen is financially capable of raising the price. Forbes estimates his net worth at US$6.2 billion (Bt190 billion), based mostly on information on shareholding and financial information obtained from families and individuals, stock exchanges and analysts. Charoen is ranked the third-richest man in Thailand by Forbes, but Thais indeed consider him the richest - rumoured to have secretly acquired vast land and assets. Singapore-based consultancy Wealth-X said Charoen's wife, Khunying Wanna, had about US$1.4 billion of stock and assets in her name.

Yet the fact that TCC Assets extended its offer deadline without raising the bid indicated Charoen himself must have felt that OUE was bluffing on his offer. After weeks of silence since it announced its interest in F&N, OUE announced last week that it would confirm on November 15 whether it was really interested and how desperately it wants F&N.

Standard Chartered Bank said in a recent research note that F&N's property assets and platform were complementary to OUE, noting that a successful bid would more than double OUE's portfolio to S$13 billion. It notes that F&N is the largest listed residential developer in Singapore by market share and manages two real-estate investment trusts (REITs) with S$4 billion of commercial assets, while OUE currently lacks this expertise, with its strength lying in its Singapore prime-office portfolio.

"By acquiring F&N's property portfolio, OUE could become Singapore's largest listed landlord and residential developer. With Singapore assets making up 73 per cent of its enlarged portfolio, investors may see OUE as the key proxy for Singapore property," the bank said.

F&N shareholders may also agree. They are waiting for OUE's offer. This explains why TCC Assets' offer has won low acceptance. Notably, TCC Assets extended the offer deadline twice, from October 29 to November 10, and then to November 22.

An interesting development in this saga came on Friday. According to a filing to the Singapore Exchange on Thursday, Morgan Stanley Asia (Singapore), which together with United Overseas Bank and DBS Bank acts on behalf of TCC Assets in the tender offer, announced that its associated company Morgan Stanley & Co International on Thursday sold 3,000 F&N shares at S$9.10 apiece.

If OUE does not make a bid, TCC Assets may be able to buy more time to garner additional acceptances or buy from the open market if the price declines.

But if OUE comes up with a higher bid, the battle could get ugly for Charoen.

Charoen made his name when his SS National Logistics won the war against PepsiCo for the control of Serm Suk. At the time, PepsiCo was confident that it would win the war, given the dominating role it played over Serm Suk, just to find out later that Goliath can sometimes lose.

He made his name internationally again when he fought against Heineken for Asia Pacific Breweries. He was considered clever to let Heineken win the war and let the value of ThaiBev's stake in F&N soar as a result.

Charoen should know now that he should make F&N shareholders happy, if he does not take all the money home and have to start a regional business on his own from scratch.


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