Breaking Up May Get Easier To Do At F&N

Source : The Business Times, October 11, 2007

ONE of the conjectures making the rounds for the recent departure of Han Cheng Fong as the chief executive of Fraser & Neave was his supposed opposition to hiving off the company's three main divisions into separately listed entities.

Dr Han: He's believed to have left F&N because he was opposed to a plan to hive off F&N's three main divisions into separate listings

The talk is that the majority of F&N's board feels that the sum of the parts may be better off than the whole. And Dr Han is supposed to have been against breaking up the divisions - a move that would have meant a smaller portfolio and less control over his favourite area, property.

Go back just five years when F&N took its then-listed subsidiaries, Centrepoint Properties and Times Publishing, private.

The rationale for the action as given by then-executive chairman Michael Fam was: 'The privatisation of Centrepoint and TimesPub is aimed at restructuring F&N into a stronger and more flexible group, to further enhance shareholder value and sustain long-term growth . . . F&N, as an entrepreneurial shareholder in these companies, already plays a proactive and pivotal role in charting the strategic directions of these businesses. The privatisation of Centrepoint and TimesPub will give more flexibility in managing their resources.'

He then went on to add that 'through appropriate rationalisation and consolidation measures, we hope to realise greater synergies within the group - for instance, by sharing best practices and tapping on the combined wealth of experience, knowledge and expertise of the management teams'.

But as one observer noted: 'Things have changed since then and you have got to flow with the times.' He also pointed out that, then, the property market was in the doldrums and Centrepoint shares were selling well below their net tangible asset value. TimesPub was also trading below its NTA. So it made eminent sense for F&N to take the companies private. In fact, over the previous 10 years, F&N had, through various offers, accumulated 83.9 per cent of Centrepoint and 87.5 per cent of TimesPub when it made the offer for the two companies in November 2001.

The last traded price of Centrepoint prior to the offer was $1.68 a share compared with its then NTA of $2.23 a share while Times- Pub's last traded price was $3.60 apiece compared with its then NTA of $4.52 a share. F&N offered the minority shareholders of the two companies $2.07 and $4.48 a share respectively in a deal that cost the company a total of $320 million.

Today, despite some small setbacks partly as a result of certain government measures, the property market is on a roll, and prices of both residential and commercial properties have soared. And so have rentals and the prices of property stocks, many of which are at all-time highs.

But the printing and publishing division continues to be a laggard, and many feel that it's a drag on F&N's share price. 'F&N's share price could be 10, 20 per cent higher than what it is today, were it not for the printing and publishing sector,' said one investor, voicing the feelings of quite a number of others. F&N shares declined 10 cents to $5.70 apiece. The stock's all-time high achieved in mid-May is $6.40.

In the last financial year, F&N's properties division contributed $350.9 million in profits before interest, tax and exceptional items (PBIT) and revenues of $1.35 billion, compared with overall group PBIT of $604 million and a turn- over of $3.8 billion.

The printing and publishing section contributed only $22.4 million in PBIT on revenues of $490.95 million.

The biggest contributor in terms of revenue was the food and beverage sector, which reported $1.94 billion in turnover, but in PBIT terms, it was second to property with profits of $227.88 million.

With a new chairman to be installed next week, and no CEO in place, it is unlikely that a break-up will take place this year. But perhaps investors will see a new F&N and a listed Frasers Centrepoint and Times Publishing some time next year. Investors can then focus on where they want to put their money.