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