Straits Trading Bidding War Will Be Test For OCBC

Source : The Business Times, January 30, 2008

THE illustrious Tan and Lee families are the ones holding court in the current bidding war over The Straits Trading Company. But it is a seemingly silent player in the entire saga that may well hold the key to the eventual outcome: OCBC Bank.

The bank is in a delicate position in this takeover tussle, being both a substantial shareholder of Straits Trading and a company in which the Lee family has a controlling interest.

This battle between the Tans and the Lees will be a test of OCBC’s independence. The bank will need to balance its duty to its shareholders with its ties with the Lee family.

OCBC and the Lee family

Thus far, little thought and attention have been devoted to the role OCBC will play in this saga. The bank is simply one of many shareholders of Straits Trading - a Singapore-listed company with interests in property , hotels and tin smelting.

But unlike many of the other shareholders, OCBC is closely linked to one of the two parties fighting to take over Straits Trading.

The bank was founded by the late patriarch and philanthropist, Lee Kong Chian, who also managed OCBC from 1938 to 1964. And, to this date - while the bank is no longer a family-owned business but a publicly traded entity - OCBC continues to be substantially owned by the Lee family.

The Lees, through their various vehicles and subsidiaries, are believed to own about a quarter of OCBC and are its single largest shareholder.

OCBC was managed for a substantial portion of its history by the late Tan Chin Tuan. Mr Tan was OCBC’s managing director and chairman from 1964 to 1983. And the Tan family, through its vehicle Tecity, retains a small stake in the bank. Still, any residual relationship OCBC has with the Tan family pales in comparison to the ties it has with the Lee family.

And it is this perceived imbalance - and OCBC’s status as a listed company in its own right - that has put it in a very delicate position, with respect to the ongoing bidding war for Straits Trading.

OCBC’s pivotal role

Tecity’s chief, Chew Gek Khim - granddaughter of the late Mr Tan - has thrown the spotlight on OCBC’s plight when her family raised its bid for Straits Trading on Monday to $6.50 a share, from $5.70 previously.

Along with the revised offer, she announced to the public that she had sent offer letters to OCBC and the bank’s insurance arm, Great Eastern Holdings (GEH) - which own 6.21 per cent and 19.92 per cent of Straits Trading respectively.

She announced that if OCBC and GEH accept Tecity’s offer, the Tan family - which now owns 23.60 per cent of Straits Trading - would end up owning 49.73 per cent of the offer target.

Her move drew the public’s attention to the pivotal role that OCBC will play in this saga, and observers will now be watching to see how the bank will respond to the competing bids for its stake in Straits Trading.

Essentially, OCBC only has one of three choices to make: sell its stake to the Lees; sell its stake to the Tans; keep its stake.

The circumstances in which it makes this choice will be closely observed. At this point, the Tan family’s offer for Straits Trading at $6.50 a share is substantially higher than the Lee family’s offer of $5.76. Selling to the highest bidder is a commercial decision that most investors understand, so shareholders are unlikely to take OCBC to task if it decides to sell its stake to the Tans.

However, if OCBC chooses to either keep its stake or sell it to the Lees, it will have to justify its decision. If the bank retains its stake, shareholders will want to know if it believes that an offer of $6.50 a share still grossly undervalues Straits Trading.

And, if it decides to sell its stake to the Lees, whose offer is $0.74 a share less than the Tans’, it will really have to come up with good reasons to satisfy its shareholders.

The picture is different if the Lees decide to counter-offer with a higher bid. Any decision by OCBC to sell its Straits Trading stake to its controlling Lee family would then be seen more as a commercial decision. And shareholders would more likely question any decision on the part of the bank to sell its stake to the Tans or to keep the stake.

OCBC, GEH and other Straits Trading shareholders have until Feb 22 to consider accepting the Tan family’s offer - that is, unless a higher bid comes in before then from the Lees.

OCBC needs to recognise that it is in a delicate position, that it is being watched, and that it should move carefully. Its move will also set the tone for GEH’s decision.