Complete Property Market Updates of Singapore

March 26, 2008

Will Lippo make counter-bid for Robinson?

Filed under: General — Propertymarketupdates @ 12:21 am

DUBAI’S Al-Futtaim Group on Monday raised its takeover bid for Singapore retailer Robinson & Co to $7.00 a share, from $6.25 previously – pressured by the buoyant performance of Robinson’s stock, which has been trading at an average of $6.64 since the original offer was made two months ago.

All eyes are now on the Lippo Group, Robinson’s largest shareholder, to see if it will sell its stake to Al-Futtaim, hold onto its stake in hopes of the takeover failing, or mount a takeover bid of its own.

Much will depend on what Lippo thinks Robinson is worth – ie, are Al-Futtaim and investors right in betting that the retailer is worth $7.00 a share.

Lippo took up its stake in Robinson in April 2006, when OCBC Bank put its 35.96 per cent stake in the retailer up for sale.

Lippo paid a 17% premium

It won the closed tender by offering $7.90 a share, buying 29.9 per cent of Robinson for $203 million. It didn’t buy the remaining 6.06 per cent to avoid the need to make a general offer for the whole company.

Lippo’s offer price of $7.90 was a 17 per cent premium to Robinson’s last traded share price of $6.75 then – and rumoured to be well above the offers made by other interested parties. Lippo had justified the premium paid for Robinson at that time by referring to the retailer’s regional potential and hefty cash balance.

Lippo’s then-deputy chairman, Stephen Riady, had said: ‘This is a company that has: No 1, excellent branding; No 2, excellent management; and No 3, strong balance sheet. They have so much cash, they are ready to capitalise on the brand and expand in the region.’

Mr Riady said that Robinson should use its investments and cash pile to fuel its expansion into new markets like Indonesia, China and Malaysia, instead of returning it to shareholders.

The value of Robinson – and the strategic direction that has taken – appears to have altered somewhat since then. Its cash balance has been whittled down by payouts to shareholders – instead of being used solely to build the Robinson’s brand and presence in the region.

The retailer’s cash balance stood at $81.88 million as at the end of FY2007, down from a balance of $108.03 million the year before. Robinson had declared a bumper dividend payout amounting to a total of $120.3 million in FY2006 – 3.5 times its full-year net profit.

The regional potential of Robinson also appears to be less than fully exploited. Other than a sizeable presence in Malaysia, with 34 stores, albeit with limited success, Robinson has not aggressively expanded elsewhere in the region.

The retailer has sought to boost its stable of brands within Singapore by adding River Island, Fat Face, Coast, Trucco and Principles to its Robinsons, John Little and Marks & Spencer brands. But growing competition from the deluge of international brand names being brought into Singapore – the likes of Mango, Zara, Massimo Dutti, Gap and Banana Republic – has threatened Robinson’s hold on the local retail market.

And, on paper, Robinson’s net asset value per share was $2.67 as at Dec 31, 2007 – a far cry from Al-Futtaim’s offer price of $7.00.

Al-Futtaim has justified its interest by saying that Robinson will be able to leverage on the group’s extensive retail expertise – Al-Futtaim represents such leading brands as Ikea, Marks & Spencer and Chrysler – while serving as a platform for Al-Futtaim’s geographical diversification in the South-east Asian region.

But does this sort of investment make the same sense for Lippo?

It would be hard to imagine Lippo making a counter-offer for Robinson at above $7.00 a share. Its reluctance to take over the retailer can be gleaned from its refusal, back in April 2006, to buy more than 30 per cent of Robinson and on what little it’s done with the retailer – in terms of leveraging on and building up its brand name and regional presence – since taking up its stake.

It might be easier to fathom Lippo selling its stake in Robinson to Al-Futtaim, which would free up the Indonesian group to concentrate on its heavy investments in property . The $180 million it would receive from Al-Futtaim, for its 25.78 million shares in Robinson, would come in handy in this respect.

Reluctance to bear a loss?

Still, given that Lippo paid $7.90 a share for its Robinson shares in April 2006, it might be reluctant to bear a loss by accepting Al-Futtaim’s offer of $7.00 a share.

Lippo might choose to continue to do nothing, as it has done so far – and hope for Al-Futtaim’s bid to fail. The offer will lapse if Al-Futtaim fails to get acceptances amounting to at least 50 per cent of Robinson, which would make the offer unconditional.

Al-Futtaim already has acceptances amounting to 26.69 per cent – which includes the 23.19 per cent pledged to it by Silchester International, Aberdeen Asset Management Asia and Tecity.

Without Lippo’s help, Al-Futtaim will have to secure the remaining 23 per cent or so worth of acceptances by itself. OCBC’s stake of some 6 per cent could go far in deciding the outcome, by the offer deadline of April 3.

Source : Business Times – 19 Mar 2008

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