Was F&N Sold Too Cheaply?

Fraser & Neave ChartSo, finally, it’s over. The takeover battle for old-line conglomerate Fraser & Neave (SGX:F99), fought by two pan-Asian conglomerates, has landed the firm in the hands of Thailand’s richest man, Charoen Sirivadhanabhakdi. His companies now control over 50% of F&N, and his winning bid of $9.55 per share will fatten that stake.

This per-share amount was around 29 times the firm’s 2012 earnings, so did Chareon get a superb deal, or was it the company’s existing shareholders that benefitted?

Buying pieces of history

The fight for control of F&N was a long one, and it involved several big companies in the region vying for strategic chunks of the company or a big swallow of the whole.

In a way, this was appropriate for one of the most long-standing companies on the SGX. Founded in the late 19th century by a pair of Scottish expatriates, the firm began life with the bland title of The Singapore and Straits Aerated Water Company.

Man cannot live and profit by soft drinks only, so F&N branched out into other businesses that were more or less complimentary. Its real estate operations eventually grew to include assets in commercial buildings, plus a property management arm and several real estate investment trusts.

The company also dived into the publishing/printing business, and continued to expand its beverage offerings. To this day, it makes and distributes some of the top drinks brands in the region.  All of us are familiar with F&N and Seasons drinks, and many of them are synonymous with events and traditions in our lives.  In fact, it’s time to start stocking up cans of F&N Outrageous Orange for Chinese New Year.

Buyout battle

Thanks largely to that long experience selling beverages, property and newspapers, F&N has become a tightly-focused, effectively managed collection of businesses. In recent times, the company has generally managed to increase its revenues and core attributable net profit every fiscal year since 2008 before stumbling in 2012.

Still, the company remains well in the black, and its net margin (8% in fiscal 2012) is good for such a sprawling conglomerate.

That profitable set of assets and those pleasant numbers attracted several big suitors when F&N found itself in play. That arguably began last July, when Charoen’s ThaiBev grabbed a 22% stake in the conglomerate from a unit of Oversea-Chinese Banking Corp. (OCBC) and its partners.

The ultimate target at that point was almost certainly Asia-Pacific Breweries (SGX:A46), one of the region’s most sprawling and successful beer groups. Back then APB was a decades-old joint venture between F&N and Heineken.

But why settle for one company when a fuller set of assets is available? This is what seemed to happen in September when Charoen’s TCC Assets, ThaiBev’s associated company, put in a $9 billion bid for F&N itself. Charoen soon abandoned the chase for APB, and Heineken quickly bought out F&N’s stake in the brewery.

Once F&N itself was in play, another well-funded regional player entered the scene. This was Overseas Union Enterprise (SGX:LJ3), a Singapore-listed vehicle closely related to Indonesia’s Lippo Group. Like TCC Assets, Lippo is at its core an investment vehicle of a patriarch (Indonesia’s Mochtar Riady) and his family. OUE gathered a consortium of investors to make a $13.1 billion bid for the conglomerate, or $9.08. This was $0.20 per share higher than Charoen’s latest offer.

After a few months of sparring between the two groups, F&N finally went with a higher Charoen bid of $9.55 per share. This valued the company as a whole at $13.8 billion.

Value for money

Not surprisingly, the long takeover struggle pumped up the price of F&N shares. That $9.55 Charoen’s going to pay is far above where its stock had been floating along in the year and a half preceding the buyout fight. In those relatively sleepy times, the stock traded in a narrow-ish range of $5.50-$7.00.]

As previously mentioned, the takeover price values the company at 29 times earnings. Meanwhile, the mean analyst estimate for fiscal 2014’s EPS is $0.54. This is 61% above the $0.33 the company made in fiscal 2012. Meaning those optimists who track the company expect a compound average annual growth rate of 27.5% across the two coming fiscal years.

So on the face of it, Charoen and his group seems to have paid more or less fair value for the company — which could be considered a good deal, as takeovers for proven firms usually command a notable premium.

But that doesn’t mean that existing shareholders got a poor deal. Quite the opposite: again on a valuation basis, the stock was trading cheaply. It took a high-profile takeover dogfight to pump them up to what they’re worth on such metrics. That buyout price represents a premium of around 36% over where F&N shares were in the middle of last year just before Charoen became involved.

Particularly considering that it’s been barely over half a year since then, 36% is a very pleasant return for any shareholder, and F&N’s are poised to profit well from the transaction. In this case, then, it appears that both sides gained, and gained handsomely.

This article was written by Eric Volkman. Eric is a contributor at

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.  Eric Volkman does not own any shares in F&N, ThaiBev, APB, or UOE.