Case Studies : A Brewing Takeover Battle for F&n

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interest in APB to Heineken.

Giving Up The Trees For The Forest

While APB was a signi cant pro t-driver for F&N24, all was not lost for Charoen. Even without APB, F&N still had other business segments such as the non-alcoholic beverage business and the real estate business25. In fact, Charoen appeared to have cleverly made use of the APB battle as a smokescreen for his ultimate takeover bid for F&N.

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In the midst of the battle for APB, Charoen had quietly increased his shareholdings in F&N to over 30%. This triggered a mandatory cash offer of S$8.88 per share26 by TCC for all the issued and paid up ordinary F&N’s shares on 13 September27. After Charoen struck the deal with Heineken to not make a bid for F&N, it no longer appeared as though there will be any more likely contestants, and he looked set to be the only bidder for F&N.

A New Challenger Appears

Just as things appeared to be going smoothly for Charoen, a new competitor presented itself in the form of Overseas Union Enterprise Limited (OUE), which is a company controlled by the Riady family28. OUE was interested in F&N’s leading integrated property businesses, which are complementary with its existing property portfolio29.

To help its pursuit of F&N, OUE approached Japan’s Kirin Holdings Co (“Kirin”) - F&N’s second largest shareholder with a 14.76% stake. Kirin is in the F&B industry and would be interested in F&N’s F&B business segments, while OUE’s core business is in property and would be mainly interested in F&N’s property business30. Dividing the deal would enable OUE to maximise the use of its nances as well as minimise its upfront cost.

On 15 November, OUE made a counterbid to purchase the entire 85.2% of F&N’s shares at S$9.08 per share (totalling S$13.1 billion); Kirin would buy over F&N’s food and beverage business for S$2.7 billion if OUE’s bid was successful. This counter- offer signalled the start of a second bidding war - the battle for F&N.

A Make Or Break Behind The Scenes

During the bidding war, it was revealed that F&N’s nine-member board actually incentivised OUE with a break fee of up to S$50 million. This break fee was to cover OUE’s takeover expenses and will be paid to OUE in the event that they lose the bid31. In short, the break fee ensured that OUE has nothing to lose in either situation32.

A Brewing Takeover Battle for F&N

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Apparently, this was not the rst time that the F&N board had offered a break fee to Charoen’s competitor. Heineken also had a break fee clause in its revised offer for APB, which set aside over S$56 million to be paid to Heineken in the event that shareholders do not approve of the APB takeover, or if the F&N board does not recommend the offer, or fails to ful l its other obligations33.

Therefore, it appeared as though the board had shown favouritism to Charoen’s competitors. The F&N board defended itself by saying that the break fee was to “create a competitive bid situation, thereby maximising value for shareholders”34.

Breaking The Deadlock

F&N’s independent directors considered both Charoen and OUE’s bids as “not compelling, but fair”35. Meanwhile, both parties refused to budge and instead extended the deadline of their offers several times. The impasse saw the SGX introduce, for the rst time, an auction process to resolve the stalemate. SGX set a deadline of 20 January 2013 for both companies to make a nal offer, and an auction process will be held if the stalemate remained36.

On 18 January, two days before SGX’s mandated deadline, Charoen revised his mandatory cash offer to S$9.55 per share37, thereby exceeding OUE’s bid. Unexpectedly, the 20 January SGX deadline passed without OUE raising its bid. Thereafter, OUE withdrew its bid, citing the recent cooling measures in Singapore’s property market as the rationale38.

Even so, Charoen continued to acquire shareholdings of F&N39 from various shareholders and the open market before TCC’s offer expired. His efforts nally paid off on 31 January, when he achieved 50.92% ownership of F&N and became the majority shareholder of F&N. This made his takeover offer unconditional40, and further ensured that even if anyone else bids for F&N, he would be the deciding factor in the bid.

Subsequently, four members of the F&N board of directors who owned F&N shares, Lee Hsien Yang, Timothy Chia Chee Ming, Tan Chong Meng, and Nicky Tan Ng Kuang, expressed their intention to accept the revised TCC’s offer to buy their shares41. Kirin also agreed to sell its 14.76% stake to TCC for approximately S$2 billion42. All of these boosted Charoen’s control of the drinks and property group to 82.59%43.

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Nothing To See Here, Let’s Go Home

In a surprise move before the dust had fully settled, F&N’s directors said its entire board would resign en masse after the closure of Charoen’s offer44. Chairman Lee said at the AGM on 29 January that this changing of guards would allow Charoen “a free hand to appoint a board to chart a course forward for the company”45.

The directors’ resignation came into effect on 27 February 2013, with Thapana and Chotiphat being appointed to the board on the very same day46.

And so, Singapore will now witness a local historic brand switch over to foreign ownership.

Discussion Questions

1. Would you consider the takeover of F&N hostile? Can you identify any takeover defence mechanisms implemented here? How would the situation change if the takeover took place in the U.S.?

2. Do you think the board composition was appropriate? Do you think the board acted reasonably during the whole takeover proceedings?

3. What regulatory bodies are involved in overseeing takeovers in Singapore and what are their roles?

4. Explain whether you think F&N’s offer of break fees to both of Chaoren’s competitors in both takeovers is appropriate.

5. “F&N (shares) have been held by families for generations. We are losing it to a foreign company so it’s a bit sad,” Mr Michael Tay, 55, told The Straits Times on the sidelines of the meeting. If you were a minority shareholder of F&N, how would you feel on knowing that the entire