Natsteel: will the gods smile on 98 Holdings?
It should raise $2.06 offer to secure success
By Mano Sabnani, Business and Financial Consultant
First published in TODAY
4 Jan 2003

As the Natsteel takeover saga drags on, the consortium led by hotelier Ong Beng
Seng appears to want to have the cake and eat it as well.

There have been few acceptances to its offer price of $2.06 per share, despite the lacklustre stock market, and had its offer closed yesterday, January 3, it would have ended up with only 33.56 per cent of Natsteel. The offer would not have become unconditional and all acceptances, amounting to just over 7 per cent of Natsteel, would have had to be returned. 98 Holdings would have had to share power in Natsteel with tycoon Oei Hong Leong who had earlier garnered 29.8 per cent of the trimmed-down-but-cash-rich steel and construction group.

As it turned out, 98 Holdings appealed to the Securities Industries Council for an extention to its offer, without raising its bid price and in the absence of a rival bidder. The Natsteel board also argued in favour of an extension, ostensibly to provide small shareholders more time to digest the information and offer. The SIC obliged, and, lo and behold, 98 Holdings now has another week to persuade shareholders to accept its offer or to buy shares in the market.

But the gods are still not smiling on 98 Holdings, which counts Temasek Holdings as a shareholder. Wall Street took off on Thursday and the Singapore market nodded its approval yesterday. There has been no avalance of selling in Natsteel shares so far and if the market rally continues, the stock may just move above the offer price and stay there. In that case, the general offer will fail and no clear majority shareholder will emerge at Natsteel.

98 Holdings' problem has been its unwillingness to move aggressively to secure control of Natsteel swifly and convincingly. From the beginning, it sought to bag Natsteel at a bargain price below $2 and allowed the shrewed Oei Hong Leong to seize various initiatives. From zero holdings, Oei amassed almost 30 per cent of Natsteel from the open market, always buying shares above 98 Holdings offer prices which started at $1.93 before being revised to $2, $2.03 and finally $2.05 and $2.06.

The Ong Beng Seng consortium has been a follower in that respect, moving its offer price higher only because it knew acceptances were not coming in at the lower price. But as it followed Mr Oei up the price ladder, it found few lose scrips available for the taking. Right now, its $2.06 offer price is probably close to the highest price paid by Mr Oei for his large block, but the problem is Natsteel's free float has shrunk considerably.

Together with acceptances, 98 Holdings is controlling 40.76 per cent while Oei is holding on tightly to his 29.8 per cent. Together they have 70.6 per cent of Natsteel, leaving less than 30 per cent to be bidded for. A price of $2.06 is probably not going to entice these firm holders who have so far resisted selling their shares to either party. Giving them more time to digest information and decide is not really the issue.

On the contrary, dragging the offer along for an extended period is only going to alienate those who have accepted the offer so far. Where they could earlier look forward to payment for their shares shortly after January 3, they now have to wait until after January 10, the new closing date. There is also a clear risk that the offer will not become unconditional, which means that all acceptances could be returned and the share price take a knock after January 10.

98 Holdings has gone on record to say that it will not raise its $2.06 offer price for each Natsteel share. However, if it wants to succeed, it will have to change its mind and secure the blessings of the SIC to raise its offer price. Now that Oei is not able to purchase any significant amount of shares, the field is wide open for 98 Holdings. A little generosity and some initiative will go a long way.

The powerful consortium probably knows that an offer of, say, $2.10 per share will secure it the minimum 50 per cent of Natsteel it needs to secure complete control of Natsteel and give accepting shareholders the money they deserve. There is a lot of value in Natsteel, even at that price, and the consortium is not the least aware of that.

Now is probably not the time to penny-pinch. A one-cent-at-a time increase in the offer price will not do. 98 Holdings has to bite the bullet and secure a decisive victory in the takeover saga, even if the victory is, in the final analysis, only against itself.