Inside Business

November 6, 2012 7:23 pm

F&N tussle shows southeast Asian M&A drive

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Regional shift to domestic consumption breeds appetite for deals

A short walk from London’s Natural History Museum stands a row of Victorian-era serviced apartments favoured by visiting Hollywood stars. The Fraser Suites are a discreet affair, with their own underground car parking – perfect for escaping snooping paparazzi.

Few visitors would know that the property is owned by an Asian conglomerate that started life in the 19th century when two Scotsmen set up a business making fizzy water for settlers in Singapore. Now, that company – Fraser and Neave – is attracting a different type of high roller, having become the target of a takeover battle between two billionaires in Thailand and Indonesia.

Charoen Sirivadhanabhakdi, owner of the TCC Group and its ThaiBev brewing business, launched an audacious S$8.88bn (US$7.2bn) bid for F&N in September. That bid expires on Thursday. But the Riady family in Indonesia, owner of the Lippo Group, is expected to launch a counter-offer for F&N through Overseas Union Enterprise, its property arm in Singapore run by Stephen Riady.

Thus, the stage is set for a showdown between two of southeast Asia’s most successful business tycoons – both drawn by a property portfolio of high-earning trophy assets, such as Fraser Suites, that many believe is undervalued.

Mr Charoen is a wily dealmaker who earlier this year forced Heineken to pay dearly for control of Asia-Pacific Breweries, maker of Tiger beer. He is F&N’s largest shareholder with 33.5 per cent, but is well short of control and has only had a little over 2 per cent of acceptances for his offer so far.

The Riady family will therefore have to beat the S$12.6bn valuation for F&N implied by the Thai offer, which is at the lower end of the S$11.9bn-S$16.1bn range suggested by F&N’s independent financial adviser, JPMorgan.

That probably means the Indonesians will need a partner: either private equity or Kirin, F&N’s second largest shareholder – or both. F&N has a thriving soft drinks business in Singapore and Malaysia that Kirin could snap up as part of a break-up of F&N.

Many have been surprised by this recent turn of events. But they shouldn’t be. Heineken’s battle with Mr Charoen over Tiger beer was a taste of things to come.

Large-scale M&A is here to stay in southeast Asia, as the region’s economies progress from being commodity and export-driven to those more reliant on domestic consumption.

This shift is breeding multinational corporations hungry for markets beyond their home bases. Several of these emerging groups are starting to use Singapore as a base for global expansion, as PwC notes in a report this week.

Moreover, these businesses’ owners – which Singapore’s wealth managers regard as a growing entrepreneur class – are becoming an impatient bunch.

We’re starting to see what Ming Lu, regional leader for southeast Asia at private equity firm KKR, describes as a “mentality of land grab”. Entrepreneurs who have built their businesses up on a national scale now feel they have to move fast to acquire assets – lest their rivals in the region get there first.

Often, these family-controlled businesses will pursue multiple targets at once, without necessarily having the resources or capital to manage them all – which is where the likes of KKR clearly hope to pick up business.

Their interest should start to shake out other undervalued assets in the region. In Singapore, there is already talk that another conglomerate, Yeo Hiap Seng, could be next. The company was founded in 1900 as a maker of soy sauce in China’s Fujian province and now makes drinks under the Yeo’s brand.

The Riadys have a long record in the region and are hardly newcomers to the dealmaking scene. But it is not far-fetched to see the battle for F&N as signalling a coming of age of southeast Asia in terms of M&A activity.

The region also boasts several well-connected, government-backed investors such as Singapore’s Temasek and Malaysia’s Khazanah, which consultancy Bain notes are “primed to play significant roles as limited partners, co-investors or direct investors”.

Sadly, investors cannot expect much of this to play out in the full glare of transparency. For one thing, many protagonists are privately held companies and not always bound by stock exchange rules of disclosure. Mr Charoen’s tactical use of private vehicles to outwit Heineken this summer left many investors exasperated. In the short term, however, there is not much they can do about it.

Jeremy Grant is the FT’s Asia Regional Corporate Correspondent

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