Great Eastern To Sell Stake In Straits Trading

Source : The Straits Times, Mar 4, 2008

Tan family’s offer turns unconditional as its shareholding crosses 50% mark.

AFTER weeks of uncertainty, the battle for control of The Straits Trading Company is now virtually over.

Major shareholder Great Eastern Holdings said last night it would sell its 19.92 per cent stake in the commodity and property development firm to the family of the late Tan Chin Tuan, a former OCBC Bank head honcho.

The move came just a day after the rival bidder, OCBC major shareholder and founder the Lee family, withdrew its $6.55 a share bid and said it would sell its stake to the Tans.

Last night, Mr Tan’s grand-daughter, Ms Chew Gek Khim, said she was ‘very happy’ at the development which paves the way for the Tans’ offer of $6.70 a share to turn unconditional, now that it has crossed the 50 per cent mark.

Including the stakes of the Lees and Great Eastern, the Tans, who made the initial bid in January, will own more than 60 per cent of Straits Trading.

Now, the remaining shareholders must decide whether to accept the offer. Some substantial investors say they are swayed to sell since Great Eastern has accepted the bid.

The Tans have said if they get more than 50 per cent of the company, they will work with the board and management to review Straits Trading’s business. ‘I don’t think it’s beyond them to asset-strip Straits Trading. They may sell off all its Malaysian properties ,’ said Kim Eng analyst Tan Chin Poh.

When contacted, one of the remaining larger shareholders, OCBC, reiterated it was still evaluating the matter.

However, observers believe there are compelling reasons why OCBC, the parent of Great Eastern, will accept the only offer left on the table.

One is that OCBC would cease to command a ‘control premium’ from any strategic buyer, after the Lees’ decision.

Indeed, this was a key argument put forward by the bank when it rejected the earlier offers. Despite having only a 6.2 per cent stake, OCBC said when combined with those of Great Eastern and the Lees, its 33.4 per cent could command a significant control premium from any strategic buyer.

OCBC also saw the potential for the trio to ‘exercise their influence’ on the Straits Trading board to continue or accelerate plans to unlock value for all shareholders.

‘But now with the Lees and Great Eastern exiting, there will not be any control premium,’ said a source. ‘The takeover bid is now unconditional, making it difficult for OCBC to say ‘no’.’

Observers believe OCBC laid its cards on the table. The bank, with Credit Suisse, has also been helping out as financial advisers to the Lees.

A dealer noted: ‘If OCBC tells the Lee family to sell its stake to the Tans, surely it applies to itself as well.’

Still, within financial institutions, a Chinese wall is said to exist between different functions, especially where a conflict of interest may exist.

OCBC’s corporate finance unit performs the role as financial adviser, while the decision concerning the bank’s Straits Trading shares is ‘undertaken by a board sub-committee appointed by the OCBC board’, OCBC spokesman Koh Ching Ching said yesterday.