DEALTALK-U.S. Hedge fund places $500 mln bet on Singapore F&N takeover war

Mon Jan 7, 2013 4:00pm EST

* Davidson Kempner has raised stake to under 5 pct since Nov - sources

* Hedge funds speculating higher bids for F&N to emerge

* F&N shares up 6 pct since bidding war started in Nov

By Saeed Azhar and Nishant Kumar

SINGAPORE/HONG KONG, Jan 8 (Reuters) - A U.S. hedge fund giant has placed a bold half-a-billion-dollar bet to profit from a battle between two Asian tycoons for Singapore property and drinks conglomerate Fraser & Neave Ltd (F&N).

Davidson Kempner Capital Management LLC has bought a good chunk of F&N shares since a consortium led by Indonesian tycoon Stephen Riady's Overseas Union Enterprise Ltd launched a S$13.1 billion ($10.7 billion) counter-bid for the Singapore firm in November. That offer surpassed an earlier one made by Thai beer baron Charoen Sirivadhanabhakdi.

Davidson Kempner's role in the F&N saga is unusual for its size and because one of the bidders, in addition to attempting to buy out the company, is trying to increase its shareholding. At least one instance has emerged in which the Thai group has offered to buy F&N shares from existing shareholders and has been rebuffed - fuelling investor expectations of higher bids and buoying F&N's stock.

The New York-based hedge fund, which manages $19 billion, has raised its F&N stake to just under 5 percent, valued at more than $500 million, since November, two sources with direct knowledge of the matter said.

That compares with less than 1 percent before the Thai takeover interest in July last year, said one of the sources, who declined to be identified as they were not authorised to speak to the media on the matter.

"That is an elephant, both in terms of the size of the fund that can and should take it and relative to Asian capital markets," said Peter Douglas, founder of Singapore-based hedge fund consultancy GFIA.

Multi-strategy hedge funds like Davidson Kempner invest money in several different ways, including betting on the success or failure of an acquisition offer for a public company - a tactic known as merger arbitrage, or "arb" trading.

The F&N bet comes at a tough time for arb traders, as M&A deal volume has declined sharply. Global M&A deals fell 3.7 percent in value last year to $2.357 trillion, while the number of announced deals dropped 11 percent to 35,794, its lowest level since 2005, according to Thomson Reuters data.

The sources say Davidson Kempner, which declined to comment for this story, stands to reap a massive profit if F&N fetches much more than the S$9.08 a share on the table from the Overseas Union group. The Thais offered S$8.88 per share.

Davidson Kempner's 5 percent stake translates into an investment worth $570 million. Other hedge funds have also piled into F&N shares, but none taking as large an arbitrage bet as Davidson Kempner, which was early to sniff out an F&N auction.

Hedge funds involved in the trade are betting that the deal could be struck between S$9.60 and S$10.50 per share, the sources said. That would be an increase of as much as 33 percent from July 16 last year when F&N came up for grabs.

The worst-case scenario for a hedge fund is getting S$9.08 per share, according to the sources, about 6 percent below the current trading price.

An F&N spokeswoman declined to comment on Davidson Kempner's stake.

TRIED AND FAILED

Thai billionaire Charoen Sirivadhanabhakdi tried and failed to acquire an additional 10 percent of shares for S$9.60 per share in F&N last month, according to a previous Reuters story.

Charoen, whose Thai Beverage PCL and TCC Assets Ltd own a combined 34 percent of F&N, is trying to boost his stake to more than 50 percent before his offer expires later in January.

Sources familiar with the matter said the reason why his bid to increase his stake at that price failed is that the hedge funds that Charoen was trying to purchase from said the S$9.60-a-share offer was too low.

Jit Soon Lim, Nomura's head of equity research for Southeast Asia, estimates F&N's net asset value to be S$11 per share.

F&N's share price has risen more than 6 percent since the Overseas Union group's bid in November. The stock was trading at S$9.69 as of Monday.

The Overseas Union consortium last week extended its offer for F&N to Jan. 14, one day after Charoen's group extended its $7.2 billion offer to take over the firm for the fifth time until Jan. 10.

The market is betting that Jan. 21 could be the D-day for the F&N battle, the final deadline for the two bidders to raise their offer. The Thais are currently F&N's largest shareholder.

"The Thai extension pushes the takeover battle ever closer to a Jan. 21 deadline, after which neither side will be able to revise its offer under Singapore's takeover laws if no new bidder emerges," said Religare Capital Markets.

Davidson Kempner's fund returned about 8 percent in 2012, according to a source familiar with the matter.

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