Davidson Kempner Capital Management LLC has bought a good chunk of F&N shares since a consortium led by Indonesian tycoon Stephen Riady’s Overseas Union Enterprise launched a S$13.1bn (US$10.7bn) counter-bid for the Singapore firm in November. That offer surpassed an earlier one made by Thai beer baron Charoen Sirivadhanabhakdi.
Davidson Kempner’s role in the F&N saga is unusual for its size and because one of the bidders, in addition to attempting to buy out the company, is trying to increase its shareholding. At least one instance has emerged in which the Thai group has offered to buy F&N shares from existing shareholders and has been rebuffed – fuelling investor expectations of higher bids and buoying F&N’s stock.
The New York-based hedge fund, which manages US$19bn, has raised its F&N stake to just under 5%, valued at more than US$500m, since November, two sources with direct knowledge of the matter said.
That compares with less than 1% before the Thai takeover interest in July last year, said one of the sources, who declined to be identified as they were not authorised to speak to the media on the matter.
“That is an elephant, both in terms of the size of the fund that can and should take it and relative to Asian capital markets,” said Peter Douglas, founder of Singapore-based hedge fund consultancy GFIA.
Multi-strategy hedge funds like Davidson Kempner invest money in several different ways, including betting on the success or failure of an acquisition offer for a public company – a tactic known as merger arbitrage, or “arb” trading.
The F&N bet comes at a tough time for arb traders, as M&A deal volume has declined sharply. Global M&A deals fell 3.7% in value last year to US$2.357trn, while the number of announced deals dropped 11% to 35,794, its lowest level since 2005, according to Thomson Reuters data.
That is an elephant, both in terms of the size of the fund that can and should take it and relative to Asian capital markets.
The sources say Davidson Kempner, which declined to comment for this story, stands to reap a massive profit if F&N fetches much more than the S$9.08 a share on the table from the Overseas Union group. The Thais offered S$8.88 per share.
Davidson Kempner’s 5% stake translates into an investment worth US$570m. Other hedge funds have also piled into F&N shares, but none taking as large an arbitrage bet as Davidson Kempner, which was early to sniff out an F&N auction.
Hedge funds involved in the trade are betting that the deal could be struck between S$9.60 and S$10.50 per share, the sources said. That would be an increase of as much as 33% from July 16 last year when F&N came up for grabs.
The worst-case scenario for a hedge fund is getting S$9.08 per share, according to the sources, about 6% below the current trading price.
An F&N spokeswoman declined to comment on Davidson Kempner’s stake.
TRIED AND FAILED
Thai billionaire Charoen Sirivadhanabhakdi tried and failed to acquire an additional 10% of shares for S$9.60 per share in F&N last month, according to a previous Reuters story.
Charoen, whose Thai Beverage and TCC Assets own a combined 34% of F&N, is trying to boost his stake to more than 50% before his offer expires later in January.
Sources familiar with the matter said the reason why his bid to increase his stake at that price failed is that the hedge funds that Charoen was trying to purchase from said the S$9.60-a-share offer was too low.
Jit Soon Lim, Nomura’s head of equity research for South-East Asia, estimates F&N’s net asset value to be S$11 per share.
F&N’s share price has risen more than 6% since the Overseas Union group’s bid in November. The stock was trading at S$9.69 as of Monday.
The Overseas Union consortium last week extended its offer for F&N to January 14, one day after Charoen’s group extended its US$7.2bn offer to take over the firm for the fifth time until January 10.
The market is betting that January 21 could be the D-day for the F&N battle, the final deadline for the two bidders to raise their offer. The Thais are currently F&N’s largest shareholder.
“The Thai extension pushes the takeover battle ever closer to a January 21 deadline, after which neither side will be able to revise its offer under Singapore’s takeover laws if no new bidder emerges,” said Religare Capital Markets.
Davidson Kempner’s fund returned about 8% in 2012, according to a source familiar with the matter.
