Bidding war wages over Straits Trading

Tecity Group increases its offer for the Singaporean company, valuing it at $1.5 billion, a 12.8% increase over the competing Lee Latex offer. Minority shareholders push the share price up.
The Tecity Group has increased its offer for Singapore-listed Straits Trading to S$6.50 ($4.71) per share, increasing by 12.8% the S$5.76 that Oversea-Chinese Banking Corporation offered on behalf of Lee Latex. At the higher price, Tecity has valued the target at S$2.1 billion ($1.5 billion).

Straits Trading is an investment holding company with subsidiaries engaged in mining, smelting, property and financial investments. Its smelting business is housed in a subsidiary called Malaysia Smelting.

Straits Trading has been a takeover target since January 6 when Tecity, through its investment vehicle, Cairns, tabled an offer to buy out the minority shareholders at S$5.70 per share. This offer valued the target at S$1.86 billion ($1.3 billion).

TecityÆs earlier and current offer are conditional upon receiving more then 50% of Straits Trading's shares. Tecity already owns 22.46% of Straits Trading through group subsidiaries which have been shareholders in the business since the 1950s.

The earlier Tecity offer of S$5.70 a share was not only a premium to the recently traded price of Straits Trading, but ôalso the highest price of the shares in the preceding 20 yearsö, as stated in the January 6 offer document. Standard Chartered Bank is advising Tecity.

On January 24, Lee Latex through investment company Knowledge Two Investment announced its competing offer at S$5.76 a share, valuing the target at S$1.88 billion.

Lee Latex and parties acting in concert, including the Lee family-owned Oversea-Chinese Banking Corporation (which is also representing the Lee family on the offer), owned 32.4% of Straits Trading in July 2007. The Lee family triggered the offer by acquiring a further 1.03% of the shares of Straits Trading at S$5.71 per share, taking their total holding to 33.4%.

Tecity also has a connection with OCBC as Tecity's founder, Tan Chin Tuan, was involved in the growth of the OCBC group. Some Tecity family members are reported to own stakes in OCBC.

Market observers have been puzzled by the Lee family offer at just six Singapore cents higher than the Tecity offer, leading to some speculation that it was primarily intended to force Tecity to increase its price.

CIMB-GK Securities has been appointed to provide the independent directors of the board of Straits Trading advice regarding the latest Tecity offer.

For the nine months ending September 2007, Straits Trading earned a net profit of around S$300 million on revenues of S$727 million. But analysts have commented that the nature of Straits TradingÆs mining and property businesses makes it difficult to value the company based only on its current cash flows.

Straits Trading was suspended from trading in the earlier part of the day pending the announcement, but resumed on the Singapore Exchange in the afternoon to close at S$6.56. The share was one of the top gainers of the day, up 11.4% as shareholders who had been hoping that the bidding war would push up the offer price were rewarded.

All eyes are now on OCBC and Lee Latex to see how they respond.
¬ Haymarket Media Limited. All rights reserved.
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