The story of Yeo Hiap Seng 1 comments

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The story of Yeo Hiap Seng in the mid-1990s is a study in two issues: one, that family businesses seldom last beyond three generations ("the first generation builds, the second preserves, the third destroys"), and two, the debilitating effects of a large corporate acquisition.

Yeo Hiap Seng had its humble beginnings in China's Fujian province, started at the turn of the century by family patriarch Yeo Keng Lian. After moving to Singapore in 1935, the family set up a sauce factory. Despite stiff competition from other players such as Tai Hua Food Industries, Sinsin Food Industries and Woh Hup Food Industries, the Yeos grabbed market share with a strong distribution network, in particular capturing a large section of the soft-drink market by catering for Chinese tastes. It eventually emerged as the largest food and beverage group in Singapore after F&N. In 1987 Alan Yeo, part of the second generation and head of the company since it went public in 1969, was named Singapore's Businessman of the Year. The clan was praised for being "a superb example of a family-controlled business" that others could emulate. Soon Yeo was appointed chairman of the Trade Development Board (TDB) and invited to join the boards of government-linked companies like Keppel Bank and Neptune Orient Lines. (Incidentally, the Businessman of the Year award has jinxed quite a few award winners, such as the Thakral family, Patrick Ngiam of IPC, Sim Wong Hoo, Lee Ah Bee of Amtek, the Phua brothers of HTL).

In 1989, YHS and Temasek Holdings bought Chun King, an American manufacturer of canned Chinese food, from Nabisco, then selling assets after a leveraged buyout, for $52M. It signalled the entry of YHS into the largest consumer market in the world -- the US. Almost twenty years later, a similar Temasek-linked attempt to crack the US market would be made by another company --- Osim --- in what is now familiar to most market watchers.

Some things never change. Underestimation of the difficulties of digesting a large acquisition, coupled with the problems of securing a beachhead on an entirely new market, appear to have remained eerily similar across two decades. Of the Chun King acquisition, an analyst dissected the issue: "It was a mistake right from the beginning. Nabisco had the food retailing muscle to carve out shelf space in the highly competitive U.S. market. But not YHS. It didn't understand the market and the resources needed to back up products." It appeared that Chun King did not have the economies of scale and distribution clout that makes a business like that profitable. Another reason was that the company's products -- canned Chinese food --- had lost much of their appeal in the US due to social trends, where even the smallest towns now had take-away Chinese restaurants.

In the four years following the acquisition, Chun King posted losses totaling $36M. In 1994 the parent wrote down Chun King's value -- taking a $25 million charge. In 1995, YHS announced the sale of some Chun King assets for $10 million, marking an ignominious exit from the US market.

In the end, the US fiasco brought down more than the bottom line: the Yeos splintered. In 1994, a group of Yeos, led by Alan Yeo's nephew Charles, began attempts to push out Alan as chairman. Its reasons: the Chun King fiasco, his inability to choose a successor and alleged autocratic leadership and bad management. In retrospect, this was just a family feud waiting to happen: by the 1990s, there were 6 families under the Yeo clan, with about 50 members, and it was claimed that too many family members interfered with the running of the company, and expected to be consulted on every major decision. Power struggles were inevitable, since everyone felt they had a right to the family fortune.

To protect his job, Alan Yeo dissolved the family holding company, fragmenting the Yeos' controlling stake in YHS. The reason was that as long as his supporters' stake, totalling 18%, were tied up in the family investment block YHS Holdings, they would be considered the minority because the opposing Yeo group controlled the other 21% in the YHS Holdings stake (which thus controlled 39% of Yeo Hiap Seng). His fragmented 18% stake could then be combined with other supporters' stakes to gain majority control of Yeo Hiap Seng over the rival Yeo group, whose fragmented 21% stake might be smaller in comparison. It was under such circumstances that the Ngs were brought in as outside support. The Ngs of Far East fame, under Ng Teng Fong, then among the richest men in Singapore.

But with the Yeo investment block split, it became possible for an outsider to divide and conquer. Eventually, Alan's allies sided with Charles instead and ruled YHS. Alan Yeo was replaced as CEO by an outsider --- the first time a non-Yeo had assumed the mantle --- and Ng Teng Fong's son, Robert Ng, took over as chairman in 1995. And so a dynasty ended, with Far East controlling Yeo Hiap Seng to this day.

And for general interest, one should appreciate the reasons why Yeo Hiap Seng was such an attractive target. For one, the brand equity of the Yeo's brand of tea and juice was immense in Asia, and the group's Pepsi bottling franchises in Singapore and Malaysia were valuable. But the big attraction for tycoons like Ng laid in its $400 million in assets, in particular the four-hectare $300-million site of its factories in Bukit Timah which had been rezoned for housing. Whoever controlled YHS would make a lot of money building condominiums on that site (Alan Yeo had been thinking of doing that after resolving his family feud before he was trumped by the Ngs). In 1995, YHS became the subject of a struggle for ownership between the Ngs and Quek Leng Chan, one of the richest men in Malaysia, who coveted YHS for similar reasons. The Ngs prevailed in the end. It probably didn't matter anymore to the Yeos by then (though they probably had a windfall through their remaining stakes as YHS shares were bid up by the Ngs and the Queks).

References:
(1) Asia Inc article Oct 1994: Yeo Hiap Seng feud
(2) Asiaweek 1995 article: Tea for Two - Battle for a Great Name and Address