08:51 AM Jan 08, 2013
SINGAPORE - A United States hedge fund giant has placed a bold US$500 million (S$610.4 million) bet to profit from a battle between two Asian tycoons for Singapore property and drinks conglomerate Fraser & Neave (F&N).
Davidson Kempner Capital Management has bought a good chunk of F&N shares since a consortium led by Indonesian tycoon Stephen Riady's Overseas Union Enterprise (OUE) launched a S$13.1-billion counter-bid for F&N in November. That offer surpassed an earlier one 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$19 billion, has raised its F&N stake to just under 5 per cent since November, two sources with direct knowledge of the matter said.
That compares with less than 1 per cent before the Thai takeover interest in July last year, said one of the sources, who declined to be identified.
"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 Mr Peter Douglas, founder of Singapore-based hedge fund consultancy GFIA.
Multi-strategy hedge funds like Davidson Kempner invest money in 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 mergers and acquisitions deal volume has declined sharply. Global mergers and acquisitions deals fell 3.7 per cent in value last year to US$2.357 trillion, while the number of announced deals dropped 11 per cent to 35,794, its lowest level since 2005, according to Reuters data.
The sources say Davidson Kempner, which declined to comment, stands to reap a massive profit if F&N fetches much more than the S$9.08 a share on the table from OUE. The Thais offered S$8.88 per share.
Davidson Kempner's 5 per cent stake translates into an investment worth US$570 million. Other hedge funds have also piled into F&N shares, but none taking as large an arbitrage bet as Davidson Kempner.
Hedge funds 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 per cent 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 per cent below the current trading price. An F&N spokeswoman declined to comment on Davidson Kempner's stake.
Last month, Mr Charoen tried and failed to acquire an additional 10 per cent of shares for S$9.60 per share in F&N. Mr Charoen, whose Thai Beverage and TCC Assets own a combined 34 per cent of F&N, is trying to boost his stake to more than 50 per cent before his offer expires later in January.
OUE last week extended its offer for F&N to Jan 14, one day after Charoen's group extended its $7.2 billion offer to take over the firm for the fifth time until Jan 10.
The market is betting that Jan 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.
Mr Lim Jit Soon, Head of equity research for South-east Asia at Nomura, estimates F&N's net asset value to be S$11 per share. Reuters
