Here are 2 scenarios in F&N's latest offer dilemma

The TCC Group of Thailand announced an offer at S$8.88.

According to Nomura, the TCC Group of Thailand, acting in concert with Thai Beverage, has announced a conditional general offer for F&N at S$8.88 after it triggered the 30% takeover threshold.

Here's more from Nomura:

As of yesterday, the TCC group controls 30.36% of F&N. Even before shareholders meet to decide on the proposed sale of APB to Heineken, they will now have to mull over the proposed mandatory conditional general offer at S$8.88 per share from the TCC group of Thailand.

The timing of the offer is interesting as the group is likely to release its offer document to shareholders by 28th September 2012, when shareholders will vote on the proposed sale of F&N’s 39.7% stake in APB and the capital reduction. TCC’s general offer for F&N may influence the outcome of the shareholders meeting.

We see the following possible outcomes:
1) Shareholders say yes to APB sale
If shareholders vote in favour of the sale of APB to Heineken, F&N will realise cash of S$5.6bn. However, the capital reduction exercise may not necessarily proceed as this requires 75% of shareholders to vote and TCC may block this proposal.

In this regard, the board will have to propose other ways to return the cash to shareholders. If TCC succeeds in controlling F&N by this time, it will steer the future direction of F&N. The APB sale scenario provides strong valuation support for F&N with the prospect of special dividends to shareholders.

This scenario could prompt shareholders to continue owning their F&N shares rather than accept TCC’s offer of
S$8.88. Indeed it is possible that during the offer process, TCC could improve its offer.

2) Shareholders do not vote in favor of the APB sale
Assuming TCC is against the APB sale and successfully blocks the transaction, the valuation support for F&N from the sale could be at risk.

There are two possible reasons why TCC would want to block the sale. On gaining control of F&N, it may want to continue the joint venture with Heineken based on the existing agreements. Under this scenario, the valuation support for F&N provided by the APB sale would be affected.

For example, if APB’s share price falls back to the pre-announcement price of about S$35, our sum-of-the-parts valuation would fall by about S$1.34 per share. It is conceivable that TCC could want to renegotiate the APB sale with
Heineken for a higher price. This could explain the timing of the general offer as it would provide TCC with a potential option to restart the negotiation with Heineken.

Will we see a higher offer?

The share price of F&N closed at S$8.92 today, above the takeover price of S$8.88. This suggests that investors are pricing in a higher offer from TCC eventually. We do not rule out this possibility as TCC will need to raise its offer if it wants to significantly increase its stake in F&N from its current holdings.