23 July 2013

Merger and Acquisition

Merger and acquisition happens in every market, especially during the bad time. You can see the acquirers are willing to pay minor shareholders a higher price compared to current market value. So what does it mean? Why do the acquirers willing to pay for higher premium? What should minor shareholders do?

Let me give you an example on recent acquisition case in Singapore market - F&N. Firstly Thai Beverages tried to enter the Beer beverages sector, as F&N was holding Tiger Bear business, which enjoyed higher net profit margin compared to Thai Beverage losing money Chang Beer. As Thai Beverages tried to venture oversea, they need a strong brand to synchronize with its own Chang Beer. Chang Beer is losing its stake against its competitor Singha Beers in local market, so it was trying to enhance its position in Beer markets by acquiring stake in F&N in the hope to control the Tiger Beer business and its distribution network. However it was Heineken to acquire the remaining stake by paying higher premium on that.

So why did Heineken agree to seal the deal with higher premium? It could be due to controlling premium it was looking for to control the whole supply chain management as well as the business network distribution which is an intangible asset to Heineken. As Tiger beer is a cash cow business, it can bring in more cash flow over the years, which allows Heineken to continue to build up the strength in South East Asia market.

If the offering share price is good, I believe there are more minor shareholders willing to take up the offer and enjoy the capital gain, else I do not think of any reasons why the minor shareholders are willing to do so. In Singapore market, you will need at least 90% shareholdings to submit the compulsory offer to allow the minor shareholders to sell their remaining shares to you in stipulated time frame.

After all, we as a minor shareholders can only enjoy the dividend income as well as the potential capital gain along the investment journey. M&A maybe a good chance for us to take the capital gain, if the offer is good. When you are looking for shares investment, please also do remember the liquidity risk that you may suffer if nobody is willing to buy the shares from you due to concentrated shareholdings under single major shareholders, unless you have done your due diligence that the major shareholder is trustworthy.

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