The company in discussion in this report is Fraser & Neave, Limited. The report will be focusing on 2 major stakeholders in the company, mainly her 2nd largest shareholder Temasek Holdings and her management team, and the implications of certain issues to these 2 stakeholders.
The first issue regarding the appointment of Lee Hsien Yang as Chairman and consultant to F&N has sparked interest and anticipation in the future growth of the company. Being at the helm of SingTel for 12 years, during which he transformed it into one of the largest Telco companies in Asia, Hsien Yang has certainly presented the necessary qualities to assist F&N with its overall strategic planning. His numerous successful overseas operations while at SingTel are proof of his competency in a highly competitive industry.
Hsien Yang’s appointment comes at a time when F&N has already had concrete plans for overseas investment. Such investments will naturally bring about an increase in operating capital and expenditure in the initial years, which might result in a slight decrease in reported earnings. However, by basing judgement solely on the initial drop in earnings, an investor might miss out on the potential growth F&N might bring in the coming years.
Implications to Temasek Holdings
Bringing on board a person of such a calibre as Chairman and consultant does provide its fair share of benefits to current shareholders and enticement to potential investors. Having invested $900 million for a 14.9% stake in F&N in late 2006, Temasek Holdings is currently the second-largest shareholder in the group after OCBC. With numerous accolades to back his sound track record in his career, Hsien Yang’s appointment to the helm of F&N will indeed greatly benefit Temasek Holdings.
With strategic plans to make acquisitions in the food and beverage business, as well as to expand her operations overseas, F&N’s growth prospects look bright. This will definitely spur investors’ interest in F&N and cause the bidding up of the group’s stock price. Apart from this, F&N’s plans will provide Temasek Holdings with the opportunity to strengthen her position in the F&B industry. In addition, Temasek Holdings will also be able to expand her overseas operations. As greater opportunities present themselves, Temasek Holdings will reap the benefits of higher profit earnings.
Response of Temasek Holdings
Having such a large stake in F&N, Temasek Holdings will no doubt be concerned over the appointment of management and in Hsien Yang’s case it stands to gain under his leadership. Anticipating good growth, Temasek Holdings might consider buying more of F&N’s shares to strengthen its position in the group and also to increase its future profits.
Implications to Management
By hiring him at a cost of approximately $250,000 and an additional annual consultancy fee of $1 million, F&N is relying on the hope that Hsien Yang would bring with him the necessary expertise to broaden F&N’s operations both locally and overseas.
At such a high cost, F&N is bearing a high wages expense which could otherwise be used to increase the group’s revenue. However, having been convinced by Hsien Yang’s proven track record at SingTel, F&N would have wanted itself to also have such a performance. Hence, to secure the services of Hsien Yang, who had been linked to other various companies upon his resignation from SingTel, F&N would be more inclined to offer him a higher-than-average salary.
On one hand, the appointment of Hsien Yang seems a good move. On the other hand, scepticism is prevalent among minor investors. Without clear and complete disclosure of the reasons behind the appointment, investors might be generally indifferent to it. Therefore, their best option might be to maintain their current portfolio and observe any positive signals arising from Hsien Yang’s appointment. Hence, there will probably not be any dramatic movements in the group’s stock...