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Hard choice for Lippo with surprise bid for Robinson stake

Indonesian group can either sell its shares, keep them or submit a counterproposal


LIPPO Group, the No. 1 shareholder of Robinson & Co, seems to be caught between the devil and the deep blue sea in the face of a surprise offer from Dubai- based Al Futtaim.

Lippo president and Robinson deputy chairman Stephen Riady told The Straits Times the offer was unexpected. Lippo is evaluating the offer and its options, he said.

In 2006, Lippo created a stir at Robinson and its loyal customer base with a bold $203 million purchase of a 29.9 per cent stake in the 150-year-old retailer.

The old guard at Robinson’s board was squeezed out, as the Indonesian group sought to make its mark. Now, the boot might be on the other foot.

Mr Riady did not spell out Lippo’s options in addressing the offer, but market watchers say the group has three main choices: sell the shares, keep them or make a counterbid.

Selling may make sense. Some observers note Lippo has built up a name in the property sector – developing various condominiums and redeveloping two properties near Collyer Quay. It bought $681 million in collectivesale sites last year. Retail-wise, however, the jury is still out on Lippo.

Robinson has expanded to Kuala Lumpur and brought in new brands, but these have not been runaway successes. Lippo also has not done much to capitalise on its Robinson stake to promote its own Indonesian retailer, Matahari, or vice-versa.

Certainly, Lippo has heavy commitments on the property front. The $537 million cash offer from Dubai works out to $160 million for Lippo – a sum that may well come in handy.

One thing, however, may hold Lippo back from accepting Al Futtaim’s offer: It would be absorbing a loss.

In 2006, it bought its stake from OCBC Bank and Great Eastern Holdings for $7.90 a share.

The offer is $6.25. Adjusted for dividends received since it took its stake, Lippo would stand to get about $7.68, which would still fall short of what it paid less than two years ago.

So, if Lippo just sits tight, Al Futtaim will need to cross the 50 per cent threshold without its help. It already has 23.19 per cent in the bag, pledged by Silchester International, Aberdeen Asset Management Asia and Tecity.

Robinson’s shareholders, though, include many retail investors, making it more tedious to amass a large percentage quickly.

If Al Futtaim fails to cross 50 per cent, it will not have to buy the 23.19 per cent from the investors and everything returns to status quo – good news for Lippo.

The only fly in the ointment is that in such rocky markets, investors will be tempted, as $6.25 is still 40 per cent better than the share price just before the offer was made.

If so, Lippo could very easily go from being a controlling shareholder to being No. 2, with very little say in Robinson’s affairs. As Lim and Tan Securities put it, Lippo could end up ‘locked in’.

The third strategy could see Lippo making a counterbid if it really wants to keep Robinson.

The irony would be having to fork out a few hundred million dollars to control a company it is already controlling, having spent only $200 million.

Of course, if Lippo is sure that Al Futtaim is dead set on Robinson, it could put in a higher bid. Al Futtaim would have to raise its bid, allowing Lippo to exit gracefully, with a profit, no less.


Source: The Straits Times 23 Jan 08


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