Written Report The company in discussion in this report is Fraser & Neave, Limited. Essay Example

make acquisitions in the food and beverage business, as well as to expand her operations overseas, F&N’s growth prospects look bright. This will definitely spur investors’ interest in F&N and cause the bidding up of the group’s stock price. Apart from this, F&N’s plans will provide Temasek Holdings with the opportunity to strengthen her position in the F&B industry.In addition, Temasek Holdings will also be able to expand her overseas operations.

As greater opportunities present themselves, Temasek Holdings will reap the benefits of higher profit earnings. Response of Temasek Holdings Having such a large stake in F&N, Temasek Holdings will no doubt be concerned over the appointment of management and in Hsien Yang’s case it stands to gain under his leadership. Anticipating good growth, Temasek Holdings might consider buying more of F&N’s shares to strengthen its position in the group and also to increase its future profits. Implications to Management By hiring him at a cost of approximately $250,000 and an additional annual consultancy fee of $1 million, F&N is relying on the hope that Hsien Yang would bring with him the necessary expertise to broaden F&N’s operations both locally and overseas. At such a high cost, F&N is bearing a high wages expense which could otherwise be used to increase the group’s revenue. However, having been convinced by Hsien Yang’s proven track record at SingTel, F&N would have wanted itself to also have such a performance.

Hence, to secure the services of Hsien Yang, who had been linked to other various companies upon his resignation from SingTel, F&N would be more inclined to offer him a higher-than-average salary. On one hand, the appointment of Hsien Yang

seems a good move. On the other hand, skepticism is prevalent among minor investors. Without clear and complete disclosure of the reasons behind the appointment, investors might be generally indifferent to it.

Therefore, their best option might be to maintain their current portfolio and observe any positive signals arising from Hsien Yang’s appointment. Hence, there will probably not be any dramatic movements in the group’s stock price initially with regards to his appointment. Response of Management It is highly unlikely that F&N did not weigh the pros and cons of Hsien Yang’s appointment. On the contrary, it was probably a calculated move whereby his appointment fits strategically into one of F&N’s plans.

Nonetheless, F&N is confident that the appointment of the new chairman will further enhance her earnings many times fold, as proven by his achievements at SingTel, despite the initial high wages expenditure in bringing him on.With Hsien Yang heading the management team, he also shares in the responsibility of maximizing F&N’s stock’s price. As shareholders anticipate the growth of F&N, he and his team will have to implement policies and seek out profit-generating avenues so as to consolidate F&N’s position as a world-class multinational enterprise and also to justify the high expenses in engaging the services of Hsien Yang. Issue 2 The second issue concerns F&N’s issuing of S$150 million worth of notes at 3. 065% per annum, of which part of it will be used to refinance existing debts of the company’s subsidiaries S$150million raised may increase the company’s total debt. The debt ratio, defined as the total amount of debt divided by the total amount of assets, will increase from 39.

41% to 40.

96%. Therefore, business leverage increases and hence risk will increase. Stockholders will then expect a higher required rate of return on their investment in F&N. Based on this, stock price might probably be depressed. On the contrary, the stock price opened and closed at the same price of S$5.

05 instead of on 10 September and has risen to S$5. 35 on 24th September. This could partly be due to F&N’s plans to expand her operations overseas and Hsien Yang’s appointment, coupled with the economic upturn following the sub-prime crisis. One other factor that could have caused the increase in stock’s price would be the issuing of the notes at 3. 065%, which is lower than any of her existing loans (refer to financial statement). There could be two reasons for doing so.

Firstly, F&N probably finds it beneficial to refinance her existing debt at lower rates, as this provides greater liquidity in funds. If so, the savings could instead be invested elsewhere, such as equipment and overseas expansion.The capital obtained can also be used for reconstruction of her debt structure for better loan management, making this a strategic move for F&N. Being a “multicurrency” note, it is highly possible that the issuing of new notes is a stepping stone to overseas expansion and thus, boosting stock prices. Furthermore, issuing at a lower rate will cost less to finance her debt. This makes it cheaper compared to issuing common stocks as the latter incurs flotation costs.

Moreover, the latter might send negative signals of her financial status to stockholders and potential investors, resulting in a decrease in stock price. Next, issuing new notes at lower rates reduces F&N’s

component cost of debt, thus WACC, defined as the weighted average of the component cost of debt, preferred stock and common equity, will decrease. Refer to Appendix A for our estimated WACC of F&N before and after the issue of the notes. The direct result of lower WACC will be an increase in revenue without generating more sales, leading to an increase in earnings and profits growth rate.

Implications to Temasek Holdings Temasek Holdings’ short-term decisions would probably be based on the reasons for issuing the notes. Although the short-term increase in stock price is favorable to Temasek Holdings, there are more to consider than capital gains from investments. If F&N issued the notes due to lack of liquidity or inability to pay off current loans, it may signal management problems and Temasek may reconsider her investment in F&N, or even impose changes to management. Response of Temasek Holdings However, the issuing of notes could probably be part of F&N’s future plans to invest overseas. Hence, such a prospect would seem to favour Temasek Holdings. These plans for overseas expansion would then be a factor in the analysis of F&N’s potential performance.

Contrary to reducing her share in F&N, Temasek may increase her stake if her own simulation of the situation demonstrates profitability. Implications to Management The increase in stock price resulting from this issue definitely favours the management. As a stakeholder, management will benefit from the capital gains of the stock price increase. However, the implications are more than this if we consider beyond the management’s status as stakeholders of the company. With the increase in stock price, investors gain confidence in F&N and this makes

it easier for management to raise capital in the future. Moreover, the growth in profits due to the lowering of WACC would speak well of the company’s performance and hence increase management’s performance bonus.

Therefore, the issuing of notes will ultimately benefit management. Conclusion The 2 recent issues concerning F&N offer various implications to both her stakeholders. In a dynamic economy, such changes are inevitable. And it is only with a good management system, coupled by strong support from her shareholders, then can F&N stand a chance to become a world-class multinational enterprise.