The battle pits Ong Beng Seng, a Malaysian-Chinese businessman who has accumulated interests in Four Seasons Resorts, Hard Rock Café, Haagen-Dazs and other international brand names, against Indonesian-Chinese corporate raider Oei Hong Leong, a scion of the Widjaja family, owners of Indonesia's ailing Sinar Mas Group.

Oei and Ong are members of that rare breed by Singapore standards--go-getters who have earned reputations for engineering deals across the region. Both have similar tastes for fine wine and restaurants. But their styles are completely different.

"Oei goes in trumpets blaring," says an investment banker who has followed the businessman's dealings for decades. "He has less of a history of owning and holding anything for long."

Ong, on the other hand, shuns the limelight, having given only two interviews in 29 years. He also tends to hold assets longer. He isn't cowed by bigger rivals: "He's tenacious, he loves a challenge," says a banker who has worked with him on various deals.

On November 12, Ong, with a consortium of powerful allies, made a general offer for the steel miller worth S$784.2 million ($445 million). To pull this off Ong had by his side government investment arm Temasek Holdings, Standard Chartered Bank and a fund controlled by Simon Murray, the former Foreign Legionnaire who spent nearly a decade at Hutchison Whampoa, where he was the right-hand man to Hong Kong billionaire Li Ka-shing.

But Oei is putting up a fight, and could well stand in the way of Ong's success. He's been accumulating NatSteel shares, and in the two days after Ong's offer was announced on November 13, Oei bought 15 million shares, bringing his total stake to 18.77 percent.

Everyone wants to know what Oei's intentions are. Even Singapore's Securities Industry Council is wondering: On November 19, it gave Oei and his company Sanion Enterprises until December 13 to state whether either intends to make a general offer for NatSteel.

How will the battle for control of NatSteel unfold until that deadline? Oei could not be reached for comment, and he didn't respond to faxed questions from the REVIEW prior to the SIC statement. What will happen next is anyone's guess.

SPARKING A BIDDING WAR

In early 2002, shares in NatSteel were trading on the Singapore Exchange at a lacklustre S$1.00. Then, in early June, NatSteel's president, Ang Kong Hua, proposed a management buy-out for NatSteel's main assets and liabilities. The bid was worth S$1.84 per share.

While Singapore buzzed with excitement over what would be the largest MBO in its corporate history, investors grumbled. The offer was too low, they said, given NatSteel's assets, which include profitable steel mills in China and Vietnam. NatSteel's net tangible asset backing per share as of June 30 was S$2.52, according to the company's first-half report. In a circular to NatSteel shareholders from NatSteel's independent financial advisers on November 6, the company's adjusted consolidated net tangible assets at June 30 were about S$1.17 billion ($664 million), including cash from two major recent asset disposals.

"The entire business has been undervalued for some time," says Seah Hiang Hong, head of research at Kim Eng Ong Asia Securities. "It's a stock that had fallen off the radar screen." Not any longer.

NatSteel's shares perked up at the prospect of some bidding interest. Company advisers at Salomon Smith Barney approached several potential buyers in the hope of securing a higher offer, and in early October, Ong's newly formed 98 Holdings consortium bid S$1.93 per share to buy NatSteel in its entirety.

But Ong wasn't the only one interested in NatSteel. While Salomon was scouting for potential buyers, Oei started to buy shares in the market at around S$1.93. By October 11, Oei already had an 11 percent stake. Ong's consortium came back 10 days later with an offer of S$2.00 per share. Then, on November 1, Oei went for the knockout punch: He asked Singapore's largest bank, DBS Group Holdings, to sell him its 14.7 percent stake in NatSteel. Oei offered S$2.03 per share.

DBS was certainly looking for a buyer. Like other banks in Singapore, it is under pressure from the authorities to divest its nonfinancial holdings as part of an overhaul of Singapore's financial sector. DBS's stake in NatSteel would have given Oei a stake of just under 30 percent, the trigger point for a mandatory general offer to all shareholders.

Ong was not to be outdone. On November 12, Ong's consortium told DBS it would not only match Oei's offer for its 14.7 percent stake, but that it would also extend that offer to all shareholders.

Later that day, DBS chief executive Jackson Tai paid a private visit to Oei at the millionaire's home in a posh district of Singapore. There, out of the public eye, Tai tells the REVIEW, he informed Oei of a competing bid and asked if he'd be willing to raise his price to S$2.05--the last price at which Oei had bought shares in the open market--and make a general offer. Oei declined. Would he sell out at S$2.03, Tai asked. Oei laughed, saying he hadn't spent S$100 million buying NatSteel shares just to make a couple of million in profit.

The next day, DBS sold its stake to Excel Partners, one of Ong's family companies, for a net gain of S$96 million. Within hours, Tai says, Oei faxed DBS an offer to buy its stake for S$2.05 per share. It was too late. The deal was done. And Oei's buying spree was just getting under way.

GOING HEAD TO HEAD

The NatSteel saga is not simply an unusual corporate battle for control. At a time when the Singapore government is keen to sell down stakes in many government-linked companies and to do so as transparently as possible, NatSteel is an important test case. What will become of this government-linked asset? Has Singapore's Temasek Holdings handled things right? Temasek owns 8 percent of NatSteel directly and has recently pledged to divest its noncore assets. So why did Temasek join Ong's consortium as a bidder for a company that it already partly owns?

Given its stated intention of divesting its noncore assets, buying into a consortium that wants to acquire one of them "makes Singapore look stupid," says an investment banker who is not involved in the deal.

Temasek's motives aren't clear: It's not known whether it stands to make an overall profit on the transactions if the consortium wins the bid and takes NatSteel private. What is clear is that Temasek will have to pony up additional funds for the acquisition if it goes ahead.

Small investors, watching Oei's share acquisition and hearing news of the businessman's separate, unspecified financing discussions with DBS, have speculated that Oei may be preparing to make a general offer.

Even if he declares to the Securities Industry Council that he's not, with his existing stake of just under 20 percent, Oei can certainly make things difficult for 98 Holdings if the consortium's general offer is accepted by other shareholders.

Oei may be hoping that the consortium will pay him a premium for his bloc of shares. He may be hoping that Ong's consortium fails to get the 50 percent acceptances it needs and that the general offer fails, leading to a drop in the NatSteel share price, and allowing Oei to mop up NatSteel shares at a lower price. Or he may be hoping to benefit from any possible sales of assets by the consortium. Oei might even want to use his China connections to find a buyer for the China steel operations.

Whatever the plans of these two men, the sudden interest in the company, which the government set up in the 1960s to support Singapore's nation-building efforts, is fuelling speculation that those bidding for NatSteel believe the company may be worth more than what is being offered to buy it.

Since the 1960s, NatSteel has become an industrial conglomerate. At its height, its operations included steel, electronics, property, construction materials like cement and pre-cast concrete, chemicals, and engineering products and services. Its steel division maintains a majority market share in Singapore, analysts speculate, with the government's Housing Development Board one of the largest customers.

It has also bought stakes in steel mills in China, Vietnam, the Philippines and Malaysia, though the operation in the Philippines has been written down to zero value, and the Malaysian operation, Southern Steel Berhad, a listed company, has been bleeding red ink over the past couple of years, according to Sebastian Heng, an analyst covering NatSteel at BNP Paribas Peregrine in Singapore.

Last year, hit by the global economic slowdown and excess supply in the world steel market, the company swung to a loss of S$129.6 million, after making a net profit of S$914 million the previous year. But there are signs the company's prospects might be improving. In the first six months of 2002, NatSteel posted a net profit of S$25.1 million.

Since 1997, NatSteel President Ang, who has been with the company for 27 years, has concentrated on shedding some of the group's more attractive assets such as electronics, as well as divesting noncore holdings such as properties and focusing on its core steel operations.

NatSteel's management has already taken steps to maximize value for shareholders with these disposals and over the years has paid out some of the proceeds. In March, NatSteel announced it would sell its stake in Brazilian Acominas Gerais at a 39 percent premium above book value. It has also sold NatSteel Broadway at 267 percent above its investment cost, according to Heng of BNP Paribas Peregrine in Singapore. These two divestments alone earned it proceeds of S$586.6 million.

NatSteel has also sold NatSteel Electronics at 553 percent above investment cost, says Heng. And it has sold stakes in the Laguna National Golf and Country Club, terminated an unprofitable bricks business, and indicated that it would like to rationalize its various property holdings.

For anyone trying to determine the plans and motives of Ong and Oei, it's fair to guess that the bottom line is profit. "The kind of prices that are being offered so far are still at substantial discounts to book value," notes Heng of BNP Paribas Peregrine. "The book value is quite conservatively stated as it is. So the obvious profit angle is to buy in cheap and hope to realize the break-up value."

BLOW BY BLOW: BIDDING FOR A SINGAPORE ASSET

November 28, 2002

JUNE 3: NatSteel CEO Ang Kong Hua leads a rare management buyout offer worth S$1.84 per share. Critics claim the bid doesn't reflect fair value.

JUNE 20: NatSteel's board announces it is looking for other buyers.

AUGUST 17: Management raises its offer, now worth S$1.90 per share.

OCTOBER 3: Ong Beng Seng's consortium, 98 Holdings, which includes government investment arm Temasek Holdings, bids S$1.93 for all of NatSteel's shares. Ong's family holds a 50 percent stake in the consortium.

OCTOBER 11: Oei Hong Leong declares that he has built up an 11.1 percent stake in NatSteel.

OCTOBER 21: Ong's consortium raises its offer to S$2.00 per share.

OCTOBER 29: Oei buys 5.37 million shares at an average price of S$2.03 per share.

OCTOBER 31: NatSteel's management team joins forces with 98 Holdings.

NOVEMBER 1: Oei offers to buy, at S$2.03 per share, the 14.67 percent stake in NatSteel that is owned by Singapore's largest bank, DBS Group Holdings, in which the government owns a significant stake.

NOVEMBER 12, MORNING: Ong's consortium tells DBS it will match Oei's offer of S$2.03 and extend the offer to all shareholders.

NOVEMBER 12, AFTERNOON: DBS CEO Jackson Tai visits Oei at home to say he has a competing offer "with a business plan and an intention to make a general offer to the public." Oei refuses to raise his bid to S$2.05, sell his shares or extend his offer to all shareholders.

NOVEMBER 12, EVENING: DBS accepts Ong's offer of S$2.03 per share in an irrevocable deal.

NOVEMBER 13 4:03 P.M.: NatSteel's shares are suspended from trading.

NOVEMBER 13 4:40 P.M.: Oei faxes DBS offering S$2.05 per share. DBS says it's too late. DBS's sale of its stake in NatSteel nets DBS a S$96 million ($55 million) gain.

NOVEMBER 14: NatSteel trading resumes. Oei buys an additional 11.5 million shares at S$2.04, bring his total stake to 17.8 percent.

NOVEMBER 15: Oei buys 3.5 million shares at an average price of S$2.05 per share, raising his stake to 18.77 percent.

NOVEMBER 15: DBS's Jackson Tai tells the REVIEW: "Even today it's not clear what Mr. Oei's plans are."

NOVEMBER 19: Singapore's Securities Industry Council tells Oei and his company Sanion Enterprises they have until December 13 to state whether they intend to make a general offer for NatSteel.

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