OUE Ltd - cash offer for F&N

Company Overview
Overseas Union Enterprise Ltd (OUE) is a diversified real estate owner, developer, and operator. It focuses its business across the commercial, hospitality, retail and residential sectors primarily in Singapore.

- OUE expressed firm intention of making an offer for F&N shares at $9.08.

- Takeover could complement OUE’s existing property portfolio, but there is risk of over paying

- Downgrade to Neutral with fair value unchanged at $2.83

What is the news?
A consortium led by OUE Ltd announced that it has made a voluntary conditional cash offer for F&N at a price of $9.08 per share, for a total consideration of $13.1bn. The offer is conditional upon the consortium having received at least 50% acceptances during the offer. Kirin Holdings Company, which holds ~14.8% shareholding of F&N, has irrevocably undertaken to accept the offer subject to certain conditions. Kirin has also agreed to make an offer to F&N to acquire the F&B business of the F&N group for a cash consideration of $2.7bn after the successful completion of the offer.

How do we view this?

We agree that the property assets of F&N are of good quality and could complement OUE’s existing portfolio and expansion plan, nevertheless the eventual successful bidder in such bidding war is at risk of over paying the target in our view. With the current F&N price is trading over the OUE’s offer price of $9.08, we believe F&N existing shareholders are not convinced to accept the offer just yet.

Investment Actions?
We maintain our fair value of $2.83 but downgrade our recommendation from Accumulate to Neutral as OUE has expressed its firm intention of making an offer for F&N. There are currently too many uncertainties to the outcome of such takeover attempt.

What does the offer price of $9.08 means?
The offer price of $9.08 represent a premium of S 20cents or 2.25% over the ThaiBev’s offer price of $8.88. It is also 9.4% higher than the lower bound of valuation estimate provided by F&N’s independent financial advisor, which opined that F&N is worth $8.30 to $11.22 per share. At OUE offer price of $13.07bn, the implied value for F&N property business, F&B business and printing and publishing (PP) business is $4.85bn, $8.11bn and $0.11bn respectively. If we strip out the breweries business which F&N had sold off for $5.6bn, and the remaining F&B business which Kirin will take over for $2.7bn, the remaining property business and printing and publishing segment will cost OUE $4.77bn.

The OUE led consortium
The holding company of the SPV, Arbon Holdings Ltd, is 50% owned by OUE and the remaining is owned by Orange Circle Investments Ltd, which is a vehicle owned by the Farallon and Noonday Funds. Farallon is a registered investment adviser with the US Securities and Exchange Commission, and Noonday and its affiliates serve as exclusive sub-advisors to Farrallon.