Great Eastern Should State Stand On Straits Trading

Source : The Business Times, March 3, 2008

THE tussle for control of The Straits Trading Company has dragged on for almost two months - during which the market has yet to know what substantial shareholder Great Eastern Holdings (GEH) thinks.

The need for GEH to show its hand has become even more urgent with the Lee family throwing in the towel and withdrawing its bid for Straits Trading yesterday.

GEH’s failure to indicate what it intends to do with its 19.92 per cent Straits Trading stake suggests a debatable lapse in its disclosure obligations as a publicly listed company.

Straits Trading received competing takeover bids from Tecity - which belongs to the family of former OCBC Bank chairman, the late Tan Chin Tuan - and the Lee family, which holds stakes in OCBC and, indirectly, in GEH.

The Tans raised their bids twice, in response to the Lees’ counter-offers. But the Lee family gave up the fight yesterday, announcing that it would withdraw its offer of $6.55 a share and sell its 7.1 per cent stake to Tecity - on the basis that it would make more sense for the Lees to realise their investment in Straits Trading now, given the current volatile market conditions.

OCBC and GEH have yet to announce their positions - and, in GEH’s case, have yet to make known their intentions at all.

Straits Trading shareholders have to decide if they want to sell their stakes to the Tans, who have offered $6.70 a share, or to hold on to their stakes.

And that decision depends on whether they think it’s time to cash out or not. For minority shareholders, knowing what the major shareholders think could help them make up their minds.

Should OCBC, which owns 6.21 per cent of Straits Trading, and GEH decide to sell their stakes to the Tans, that could mean a very different future for Straits Trading.

There’s also the matter of the size of GEH’s stake in Straits Trading. The insurance firm’s stake of 19.92 per cent is second only to that held by the Tan family, which now owns about 26.05 per cent.

GEH’s substantial ownership of the tin-mining company means that any action it takes in relation to the latter would have a significant impact on it. Its decision to hold or sell could make or break the takeover situation Straits Trading is facing.

Should GEH choose to sell its Straits Trading stake - along with the Lees disposing their 7.1 per cent - Tecity would end up owning a whopping 53.07 per cent, making its takeover bid for Straits Trading unconditional.

The material impact of GEH’s vote all the more necessitates frequent and timely disclosures on its plans for Straits Trading.

This is especially so when smaller shareholders have recognised the importance of keeping the market informed of their intentions for Straits Trading, given the significance of their position.

OCBC last month rejected the takeover offers for its shares in Straits Trading, saying that it can extract greater value for itself by staying put and adopting a more proactive role in the company.

The bank also noted that Straits Trading has a cash surplus of $347 million and a realestate portfolio worth at least $1.33 billion, and said that it would seek board representation at Straits Trading as well as request the board to appoint a financial adviser to study ways to unlock value and enhance shareholders’ value.

Aberdeen Asset Management, which owns about 2.5 per cent of Straits Trading, has also signalled its intentions. It said last week that it would choose the option that would realise the maximum value in Straits Trading.

GEH, on the other hand, has remained mum on its plans - save for a statement, reported in early January, that said that it had yet to decide on the initial offer made by Tecity.

The importance of major shareholders keeping the market informed as to their plans for Straits Trading was probably also recognised by Tecity - which sent personalised offer letters to OCBC and GEH, in addition to the general circular to shareholders. The move had the effect of putting the spotlight on OCBC and GEH and their disclosure obligations.

It could be that GEH believes the market would assume that it would vote in the same way as its parent, OCBC.

But, as one would never assume that every statement made by OCBC reflects a similar position held by GEH, that assumption is flawed. GEH is, for all intents and purposes, an independent entity that’s listed on the Singapore Exchange and accountable to its shareholders.

One would also hope that in a market as developed as Singapore’s - and especially one that prides itself on having an efficient disclosure-based regime - listed companies would choose not to forego such important announcements, on the basis of such assumptions.