Lippo buys Krishnan’s OUE stake for $957m

The tenuous alliance between Indonesia’s Riady family and Malaysian tycoon Ananda Krishnan in Overseas Union Enterprise (OUE) has come to an end – at a price of almost $1 billion.

Yesterday, the Riadys’ Lippo Group paid some $957 million to acquire all of Mr Krishnan’s stake – and greater control – in the mainboard-listed property group.

With the deal, Lippo’s direct and indirect interests in OUE rose to 88.52 per cent from 64.67 per cent.

OUE’s free float after the deal will only slightly exceed 10 per cent, putting it at risk of delisting. Nevertheless, Lippo said that it intends to keep the firm listed.

The buyout is the latest display of differences between two of the region’s richest business groups, which have been in legal battle over a failed satellite TV venture in Indonesia. Just last month, Mr Krishnan’s subscription TV group Astro won an award of some US$230 million against Lippo.

The bad blood seemed to have spilled over to the partnership in OUE. Reports noted how the two parties had disagreements over the management of the firm.

Yesterday morning, OUE called for a trading halt in its shares before news of the ownership changes broke. Lippo’s investment unit Golden Concord Asia bought direct and indirect stakes in OUE from Barinal, a unit of Usaha Tegas. Usaha Tegas is Mr Krishnan’s private investment holding firm.

Lippo paid $11 per share for the additional interest. The price represents a premium of 21.7 per cent to OUE’s last closing price of $9.04 last Friday. After trading in OUE resumed later in the afternoon, the counter shot up and closed at $11.98, up $2.94 or 32.5 per cent from Friday.

OUE’s board underwent a reshuffle to reflect the ownership changes. Lippo president Stephen Riady became executive chairman of OUE, a step up from his original role as executive director.

Christopher James Williams, who was OUE’s non-executive chairman, became deputy chairman. At the same time, Barinal’s four nominees to the board resigned, and a new non-independent and non-executive director joined the team.

Lippo, meanwhile, expressed confidence in the growth potential of Singapore’s property market, and said that the deal allowed it to strengthen its asset base here.

‘This transaction is testament to our commitment to Singapore and to being a key player in the vibrant property and hospitality sector here,’ Mr Riady said. ‘OUE will continue to focus on its core business in hospitality, as well as to strengthen its position in the premier retail and commercial space.’

OUE’s portfolio cuts across the hospitality, retail, commercial and residential sectors. It is widely known as the owner of Mandarin Orchard Singapore, the recently revamped Mandarin Gallery and The Grangeford. It is also developing 50 Collyer Quay.

As at December last year, it had some $2.77 billion worth of assets. It posted a net loss of $92.2 million for the full year ended Dec 31, mainly due to fair-value and impairment losses.

OUE was controlled by United Overseas Bank up until 2006, when the latter had to dispose of non-core assets to comply with the Monetary Authority of Singapore’s guidelines. Lippo and Usaha Tegas then joined hands to acquire the property firm for $1.8 billion.

With relationships between the two major shareholders souring, market watchers felt that the latest development could be in OUE’s interests.

According to NUS Business School’s professor of accounting Mak Yuen Teen, having several major shareholders in a company can sometimes be a good thing because they can ‘monitor each other’.

But he also pointed out that the company would not be able to move forward if the major shareholders are not on good terms. In such a case, it would be better to ‘get past hostilities’ and have just one major shareholder.

Another industry insider agreed that the deal could be better for OUE’s development. But he also tried to play down the significance of the buyout. ‘Quite often, people pull out of a company if they don’t share the same vision. . . It’s just about business.’

Source : Business Times – 10 Mar 2010