HSU FU CHI (Lim&Tan)

S$4.00-HFCS.SI

􀁺 Nestle is proposing to acquire 60% of Hsu Fu Chi (HFC) by purchasing 43.52% stake via a scheme of arrangement in accordance with the Singapore Code on Takeovers and a 16.48% from the founding Hsu Family.

􀁺 The offer price to be made in cash is $4.35, or 9% above its last trade price and only 5 cents below its all time trading high achieved on 30 June ’11.

􀁺 The scheme is subject to minority shareholder approvals and to date, Arisaig, Winmoore and Star Candy who owns 8.95%, 1.68% and 14.81% of the company respectively has given irrevocable undertaking to vote in favor of the deal. In addition, they have also agreed to be bound by certain nonsolicitation provisions during the term of the deal.

􀁺 The approval of the scheme will require more than 75% of shareholders to vote in favor of the offer. With the above mentioned shareholders in total representing 58% of minority shareholders, we believe the scheme would likely be put through.

􀁺 The proposed transaction is to allow minority shareholders to realize their investments at a good profit considering the low trading liquidity, create a partnership between Nestle and HFC and to delist the company from SGX.

􀁺 The deal would value HFC at 30x PE in line with its peers trading in Hong Kong and Taiwan. This is quite fair for minority shareholders.

􀁺 The only obstacle would be that the deal needs to be cleared by anti-trust authorities in China.