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Yeo’s Lures Suitors Seeing to Win Over Owners: Real M&A

Yeo Hiap Seng Ltd. (YHS) would be among the most alluring targets in Asia’s booming drinks market if it weren’t for the Singaporean company’s controlling family.

With a factory in China and sites planned for Cambodia and Indonesia, Yeo’s offers acquirers a ready-made distribution network, said CMC Markets. The $1.18 billion seller of soy milk and chilled melon tea has more than doubled its profit in two years, and rivals such as Suntory Beverage & Food Ltd. (2587) are seeking food and drinks assets in emerging markets.

The biggest hurdle to any deal may be the Ng family, which has rebuffed bids for its majority stake in Yeo’s, said people familiar with the approaches. Even after stock-price gains since the financial crisis, Yeo’s trades at a cheaper valuation relative to its cash flow than most Asian peers, according to data compiled by Bloomberg. While the family may resist selling at such levels, there still may be interested buyers, said Malayan Banking Bhd.

“They have great distribution, a household name and revenue growth,” said Kelly Teoh, market analyst at IG Asia Pte in Singapore. “There aren’t many household names left that have very strong branding and a story to go with it.”

Founded by Yeo Keng Lian in 1900, the company first sold soy sauce from a shop in Zhangzhou in southeastern China, its website says. After moving to Singapore in 1935, the business expanded and Yeo’s products now include soy milk, chrysanthemum tea and canned chicken curry.

Market Access

Singapore and Malaysia accounted for 86 percent of Yeo’s revenue in 2012, while China and Hong Kong generated 4 percent, according to its latest annual report. Sales climbed 28 percent and profit soared 65 percent to S$70.4 million ($56 million).

“It’s quite a growth segment,” Desmond Chua, a market analyst at CMC Markets in Singapore, said by phone. Yeo’s appeal as an acquisition target is “definitely access to those markets, and China.”

Accenture Plc expects food and beverage consumption in Yeo’s largest markets to keep soaring as the wealthier middle class expands. Tapping that demand, Yeo’s will set up manufacturing plants in Cambodia by 2015 and in Indonesia by 2016, the company said in its annual report. A new Chinese plant in Sanshui, Guangdong, was completed in January, it said.

Willing Seller?

While Yeo’s, controlled by the Ng family’s Far East Organization, is an enticing target, that’s no guarantee of a deal, said James Koh, an analyst at Maybank in Singapore.

“They would be of interest to acquirers interested in boosting their presence in this part of the world,” he said in a phone interview. “Whether Far East would sell is another story. They don’t really need the money.”

Singapore’s largest closely held developer, Far East bought most of Yeo’s in 1995 with a bid from founder Ng Teng Fong that valued Yeo’s at about S$760 million. He was the city’s richest man when he died in 2010 at the age of 82.

Far East controls at least 65 percent of Yeo’s, according to data compiled by Bloomberg.

A representative for Far East in Singapore said the company doesn’t comment on speculation, as did a representative for Yeo’s.

Yeo’s share price has climbed 46 percent since the end of 2009. Even so, the company is trading at just 14 times the free cash flow it generated in the past 12 months, data compiled by Bloomberg show. Among 22 peers in Asia with a market value greater than $1 billion, including Tokyo-based Suntory Beverage & Food, only one trades more cheaply.

Its shares rose as much as 4 percent in Singapore trading today, the most in more than five months, before closing 2 percent higher at S$2.55.

Suntory Spree

Suntory Beverage & Food, the maker of Orangina, said in July it’s prepared to spend as much as $4.9 billion on acquisitions, mostly in emerging nations, to cut reliance on its home market. The company in September agreed to pay 1.35 billion pounds ($2.1 billion) to buy the Lucozade and Ribena brands from GlaxoSmithKline Plc.

Thai billionaire Charoen Sirivadhanabhakdi this year took over Fraser & Neave Ltd., a Singapore conglomerate with investments from food to publishing, in a S$13.8 billion deal.

F&N, which is focusing on its food and beverage businesses after deciding to spin off its property unit, is looking for acquisitions in the sector, its chief financial officer Hui Choon Kit said in August.

“If you look at the Asia Pacific, on a long-term basis it’s an attractive market,” Andy Sim, an analyst at DBS Group Holdings Ltd. in Singapore, said in a phone interview. “It’s the pursuit of growth, distribution and brands.”

Consumer spending on food and beverages in Southeast Asia will jump to about $350 billion in 2020 from less than $200 billion in 2000, according to a 2011 report by Accenture.

That potential may be enough to entice overseas and domestic buyers for Yeo’s, said Chua at CMC Markets.

“It’s attractively priced,” he said. “We might get foreign bids.”

To contact the reporters on this story: Angus Whitley in Sydney at awhitley1@bloomberg.net; Joyce Koh in Singapore at jkoh38@bloomberg.net

To contact the editor responsible for this story: Sarah Rabil at srabil@bloomberg.net

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