Wednesday, July 01, 2009

F&N secured a 20-month extension of its Coca-Cola bottling & distribution business

Talk about poor timing! One day after I posted on the F&N's stealthy rally in the past 2 months & proposing a trading SELL on the stock at RM10.00-10.40, the company announced the following:

1) it has entered into a Transition Agreement with Coca-Cola on 30 June 2009, which will take effect from the expiry of the Bottler’s/Distributor’s Agreements on 26 January 2010 for another 20 months until 30 September 2011, with some modification of terms. This will extend F&N's bottling & distribution of Coca-Cola products by another 20 months.
2) pursuant to (1) above, it has agreed to purchase additional 10% equity interest in F&NCC Beverages Sdn Bhd ("F&NCCB") and F&N Coca-Cola (Malaysia) Sdn Bhd ("F&NCC(M)")(both currently 90%-owned by F&N) for a total cash consideration of RM78.8 million. These 2 subsidiaries presently carry on the business of bottling & distributing Coca-Cola products.
For more on these announcement, go to here & here.

Notwithstanding the above, I believe that F&N is still a trading SELL at RM10.00-10.40. I expect a big jump in the price when the share is re-opened for trading. The stock is now suspended for trading.
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2 comments:

  1. UnknownWednesday, July 01, 2009 11:14:00 AM

    Hi Alex,

    What's this Talam-PB? What do u think is the fair value for her?

    Thanks.

    ReplyDelete
  2. Alex LuWednesday, July 01, 2009 4:59:00 PM

    Hi Brian,

    I don't track Talam. So, I am not aware of its current operation, its financial position & recent performance as well as its proposed regularization plan. Under that proposal, 3 different loan stocks & 1 preference share would be issued. I understand that all these are convertible to ordinary share on a 1-to-1 basis, from date of issuance until its expiry in June 2014. I guess one can arbitrage by buying Talam-PB (presently at RM0.095) & converting it to share (presently at RM0.11) to make a profit of RM0.015 (giving a handsome return of 15%). Of course, if too many people jumped into this, the price of the share would adjust downward & the profit margin will evaporate. Normally, when I am presented with this situation, I asked the question- why do the sellers of Talam-PB chose to sell & forgo the profit of 15%? You can say I am a suspicious person but I believe there is no free lunch in the stock market. When you see one, be very careful. It could be a mirage or a trap!

    ReplyDelete