Wednesday, January 16, 2013

FNN

FNN: The Securities Industry Council (SIC) has taken the unprecedented step of calling for an auction to break the impasse in the 6mth -long F&N takeover battle. The move by SIC is notable not just because it has not been done before, but also because Singapore's takeover code does not explicitly spell out such a stalemate breaker. Thai tycoon Charoen Sirivadhanabhakdi's privately held TCC Assets yday pushed the deadline of its $8.88/ sh offer to Jan 21, matching a similar extension by a consortium led by OUE for its $9.08/sh bid. Because Singapore's takeover law sets Jan 21 as the last day for OUE - and TCC, by implication - to revise its offer, the matching extensions raised the possibility that minority shareholders could be left with offers significantly below current market prices when time runs out. FNN shares closed at $9.70 yday. Both offers are conditional upon the bidders gaining majority control of F&N. As at yesterday, TCC had a deemed shareholding of 34.2%, including a 0.5% stake from acceptances. As at Monday, OUE had a deemed stake of almost 15%, the bulk of which comprises a 14.8% stake pledged by Kirin, a Japanese brewer. Under the auction process, which takes a leaf out of the UK, TCC and OUE will have until 5.30 pm on Sunday to make a revised offer. If a competitive situation remains, both parties may revise their offer on Monday to start the auction. Bidders may continue to make one new bid per day as long as the other party had made a revision the day before, and as long as the SIC allows the auction to continue. Revisions have to be made in one-cent increments, and must be in cash - bidders may not introduce any alternative consideration or use a formula. The auction ends when neither side puts in a new bid. Market watchers note, OUE's ability to raise its price in an auction may also be complicated by F&N independent adviser JPM’s Dec 31 opinion that a planned offer by Kirin to buy F&N's beverage assets for $2.7b if OUE succeeds was "fair but not reasonable". That finding freed OUE from an obligation to support Kirin's offer - part of the quid pro quo in their alliance. Because of uncertainty about what exactly JP Morgan found to be "not reasonable", it is not clear whether and by how much Kirin would have to adjust its offer to retain OUE's support. Consequently, that could make it difficult for OUE to figure out how much it can afford to put forth, although OUE is also theoretically free to now accept a higher third-party bid for the beverage business. Religare Capital believes TCC, and Mr Charoen's publicly listed Thai Bev, was a more "natural" owner of F&N that might have a slight edge over OUE, depth of pockets notwithstanding.

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