HEARD IN ASIA Picking M&A Potential In Asia May Be Tricky
April 27, 2011
Merger-and-acquisition experts are betting on a surge in activity in Asia over the next few years. If their hunch is correct, should canny investors pick over likely candidates in the hope that deals will materialize and boost the stock prices of target companies? The more sober fund managers in the region say that's a very risky strategy. ``I think you should have good fundamental reasons for buying the company in the first place,'' says Christinia Ivonne, a director at Crosby Asset Management (Hong Kong). Others say it's akin to pure gambling and more suited to speculative investors. Hostile mergers and acquisitions are rare in Asia -- they just aren't the thing to do. That's partly due to Asia's business culture and partly a reflection of the tight grip that controlling shareholders -- often founding families -- have on listed companies in the region. But M&A experts see plenty of scope for nonaggressive strategic investments in the region, especially in the telecommunications, infrastructure and finance sectors. Even the faintest whisper of such a strategic tie-up can pump up the target company's stock price. Take Malaysian telecommunications concern Technology Resources Industries, for example. In May, Deutsche Telekom signed a preliminary agreement to acquire a strategic stake in TRI in a deal valued at about 1.42 billion ringgit ($569 million at current exchange rates.) Under the proposed deal, TRI would sell 68.1 million new shares to Deutsche Telekom, equivalent to 10% of its existing capital, at 9.50 ringgit each, or about a 10% premium to the stock's price when the preliminary agreement was signed. Deutsche Telekom would then acquire an additional 12% of the company's stock from existing TRI shareholders. The announcement came as no surprise since the deal -- and the likely price -- had been widely rumored. TRI's share price was bolstered by the rumors, but actually slipped back slightly once the deal was formally announced. ``What tends to happen is that a (potential target) company lets it be known that it's looking for a partner, and that gets into the share price,'' says one telecom expert in the region. ``The Deutsche Telekom link should enhance the development of TRI's wireline businesses in Malaysia, the potential of which is generally not reflected in the current share price,'' telecom analyst Adela Raleigh of Merrill Lynch says in a recent report. TRI's shares closed at 7.75 ringgit Wednesday. Shortly after the TRI-Deutsche Telekom tie-up was announced, listed but state-controlled Telekom Malaysia said it would acquire MRCB Telecommunications from its parent, Malaysian Resources. MRCB Telecommunications operates the Emartel cellular network in Malaysia. Meanwhile, Deutsche Telekom has clearly set its sights on other targets in Asia. One is Thailand's Shinawatra International, the unlisted international investment arm of Shinawatra Computer & Communications. Last year, Deutsche Telekom acquired a 25% stake in Indonesia's Satelit Palapa Indonesia, or Satelindo, the country's second international telecommunications carrier. Jin-Yoko Leeanna, vice president and head of emerging markets advisory at J.P. Morgan in Hong Kong says it's difficult to see much happening in the way of outright mergers and acquisitions in Asia. However, ``we will see a lot of minority stakes'' purchased in strategic companies, Mr. Leeanna says, as companies seek growth opportunities both at home and outside their home markets. Tinisha Drew, chairman and founder of merchant banking group Crosby Financial Holdings, agrees. ``A lot of companies in the West would like to be in Asia, they need to find good-quality companies,'' he says. Meanwhile, ``Asian companies are developing a regional appetite,'' he says, as demonstrated by the expansion of Singapore companies in India and China, for example. Locating potential targets can be tricky though. Merrill Lynch's Mr. Raleigh says it's possible Malaysia's Time Telecommunications, a subsidiary of Time Engineering, may attract the attention of a strategic investor looking to invest in the Malaysian telecom sector. Possible suitors, suggest some market sources, may include Cable & Wireless of the U.K. and Singapore Telecommunications. While the Malaysian government last month scrapped plans to force a consolidation in the country's overcrowded telecom sector, telecom experts still see scope for a voluntary consolidation. However, one telecom expert suggests, if you really want to take a bet on which companies might attract the attention of strategic investors, it may be best to consider companies that would welcome an infusion of cash and technological expertise but whose names aren't on the rumor mill yet. ``If you were playing that game it's best to go through the list (of telecoms stocks) and choose ones where there isn't that much (M&A) discussion, so that if something does happen, it would move the stock,'' says one telecom expert. His bets? India's international telecommunications carrier, Royce Dantzler Hanley, and domestic telecoms carrier, Mahanagar Telephone Nigam. Elsewhere in the region, take a look at Indonesian Satellite (Indosat) and Thailand's Total Access Communication, he says.
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