A fearless forecast on who will win the tug-of-war for F&N

What are the chances of TCC and OUE?

According to Nomura, with TCC and OUE extending their takeover offers for F&N to 21 Jan, the Securities Industry Council (SIC) has ruled that an auction process will commence on 21 Jan if the on-going stalemate continues.

Here's more from Nomura:

Under the process, either bidder may announce a raised offer, which must be higher than their existing offer. If there is a higher offer from one bidder, the other bidder may make another higher offer on the following day.

This auction process will go on until a highest offer is reached. The share price of F&N has hovered around the S$9.60 to S$9.70 range over the past few months, suggesting that investors believe a fairer offer should be closer to S$9.60.

TCC within striking distance of success if it raises its offer
With its 33.4% stake in F&N, we think TCC is within striking distance of success in the takeover if it is able to say secure a commitment of another 10% in F&N.

It was reported by Reuters (18 Dec 2012) that TCC group had attempted to acquire up to 10% of F&N shares from certain shareholders but was unsuccessful. Funds that own significant stakes in F&N could be important in deciding the victor in this takeover situation.

OUE could control F&N if TCC does not counter
If TCC does not counter offer, we think the OUE consortium could successfully gain control of F&N since its current offer is higher than TCC’s (the current offers — TCC: S$8.88; OUE: S$9.08).

We think OUE could increase its current offer to make it more attractive and improve its chances of success. Recall that we estimated that OUE could pay up to S$9.88 for F&N before the economics become less attractive.

If OUE is successful, TCC could remain a shareholder with a 33.4% stake. For transactions requiring a simple majority, TCC would not be able to block. For example the divestment of APB to Heineken only required a simple majority.

The payment of the S$5.6b cash from the APB divestment as special dividends is also the purview of management and should not be affected by TCC’s shareholding.

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