Three-Headed F&N May Look At Split: Analysts

Source : The Business Times, July 2, 2008

Optimism on group's prospects, musings over chairman's role

The new organisational structure at Fraser and Neave (F&N) could set the stage for a split in the conglomerate's core businesses, some market watchers say.

F&N announced on Monday that it will not appoint a group CEO, following months of search. Instead, the three CEOs of its food and beverage (F&B), property, and printing and publishing (P&P) businesses will report to the board through the Chairman's Office.

Reassuring: Currently CEO of Asia Pacific Breweries, Mr Koh will take over the group's F&B business on Oct 1

The group also said that it has initiated a strategic review of its P&P business.

DBS Vickers believes that F&N's businesses are unlikely to split up in the short term, but does not rule out this possibility in the medium term.

This is because 'management would need to take a step at a time to (i) restructure and spin off P&P; (ii) build up F&B to a more substantial level (in terms of profit contribution . . . ) before any possible restructuring of the F&B and property businesses', it said in its report yesterday.

DBS Vickers is also optimistic on F&N's prospects as CEO of Asia Pacific Breweries, Koh Poh Tiong, moves over as CEO of the group's F&B business on Oct 1.

A second research house, Kim Eng, said in a report yesterday that 'by separating the divisional responsibilities, we believe the stage is being set for the group to shift the goal posts.

'Ultimately, it would be more ideal, both for shareholders and divisional management, for F&N to separate the F&B and property businesses,' the report noted.

There is possibly another market reading: a break- up of F&N's businesses may be easier without a group CEO who may be reluctant to divest his powers.

F&N's decision to not have a group CEO came on the back of a review, which recognised the difficulty of recruiting someone with all the necessary skills to realise the full potential of its businesses.

The organisational structure may not be ideal, but it could be a pragmatic solution given the lack of suitable candidates, says Mak Yuen Teen, co-director of the Corporate Governance and Financial Reporting Centre.

F&N's new arrangement, which was partly driven by the distinct characteristics of its businesses, would also raise questions about whether the segments should be run as separate entities, he notes.

Mr Mak also points out that F&N's chairman, Lee Hsien Yang, may have to become more involved in the group's operations. 'The board probably won't be involved that much on a day-to-day basis,' he says. 'Somebody has to coordinate the different businesses and have the different CEOs report to him.'

Both DBS Vickers and Kim Eng issued 'buy' calls on F&N, but that did not stop a fall in the counter by nine cents or 2 per cent to $4.44 yesterday.